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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

COMMISSION FILE NUMBER: 000-32647





KNOLOGY, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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





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

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



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x        
|Non-accelerated Filer   ̈   |  | Smaller reporting company   ̈

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, 2008, Knology, Inc. had 35,506,790 shares of common stock outstanding.









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KNOLOGY, INC. AND SUBSIDIARIES

QUARTER ENDED MARCH 31, 2008

INDEX



|        |  |                                                                                                              |  |   
|------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|        |  | PAGE                                                                                                        
|PART I  |  | FINANCIAL INFORMATION                                                                                        |  |   
|        |  |                                                                                                             
|ITEM 1  |  | FINANCIAL STATEMENTS                                                                                         |  | 3 
|        |  |                                                                                                             
|        |  | Condensed Consolidated Balance Sheets as of December 31, 2007 and Unaudited as of March 31, 2008             |  | 3 
|        |  |                                                                                                             
|        |  | Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2008 |  | 4 
|        |  |                                                                                                             
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2008 |  | 5 
|        |  |                                                                                                             
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                               |  | 6 
|        |  |                                                                                                             
|ITEM 2  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 12
|        |  |                                                                                                             
|ITEM 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 18
|        |  |                                                                                                             
|ITEM 4  |  | CONTROLS AND PROCEDURES                                                                                      |  | 19
|        |  |                                                                                                             
|PART II |  | OTHER INFORMATION                                                                                            |  |   
|        |  |                                                                                                             
|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



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PART 1. FINANCIAL INFORMATION



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

KNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)



|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | -------- | - | ------------------------ | - | -------- | -
|                                                                                                                                                                                     |  | December 31,2007 |          |   | March 31,2008(Unaudited) |  
|ASSETS                                                                                                                                                                               |  |                  |          |   |                          |   |          |  
|CURRENT ASSETS:                                                                                                                                                                      |  |                  |          |   |                          |   |          |  
|Cash and cash equivalents                                                                                                                                                            |  | $                | 46,448   |   |                          | $ | 31,555   |  
|Restricted cash                                                                                                                                                                      |  |                  | 1,459    |   |                          |   | 1,459    |  
|Accounts receivable, net of allowance for doubtful accounts of $975 and $1,109 as of December 31, 2007 and March 31, 2008,
respectively                                              |  |                  | 30,154   |   |                          |   | 29,092   |  
|Prepaid expenses and other                                                                                                                                                           |  |                  | 2,198    |   |                          |   | 3,545    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current assets                                                                                                                                                                 |  |                  | 80,259   |   |                          |   | 65,651   |  
|PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                                                                   |  |                  | 403,476  |   |                          |   | 414,222  |  
|GOODWILL                                                                                                                                                                             |  |                  | 98,638   |   |                          |   | 152,932  |  
|CUSTOMER BASE                                                                                                                                                                        |  |                  | 3,672    |   |                          |   | 5,721    |  
|DEFERRED DEBT ISSUANCE COSTS, NET                                                                                                                                                    |  |                  | 11,092   |   |                          |   | 10,569   |  
|INVESTMENTS                                                                                                                                                                          |  |                  | 2,536    |   |                          |   | 2,536    |  
|INTANGIBLE AND OTHER ASSETS, NET                                                                                                                                                     |  |                  | 1,764    |   |                          |   | 2,713    |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total assets                                                                                                                                                                         |  | $                | 601,437  |   |                          | $ | 654,344  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|                                                                                                                                                                                     |  |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                 |  |                  |          |   |                          |   |          |  
|Current portion of long term debt                                                                                                                                                    |  | $                | 6,162    |   |                          | $ | 6,906    |  
|Accounts payable                                                                                                                                                                     |  |                  | 26,834   |   |                          |   | 25,021   |  
|Accrued liabilities                                                                                                                                                                  |  |                  | 25,865   |   |                          |   | 24,772   |  
|Unearned revenue                                                                                                                                                                     |  |                  | 14,588   |   |                          |   | 14,760   |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total current liabilities                                                                                                                                                            |  |                  | 73,449   |   |                          |   | 71,459   |  
|NONCURRENT LIABILITIES:                                                                                                                                                              |  |                  |          |   |                          |   |          |  
|Long term debt, net of current portion                                                                                                                                               |  |                  | 549,156  |   |                          |   | 606,504  |  
|Interest rate hedge instrument                                                                                                                                                       |  |                  | 13,782   |   |                          |   | 28,806   |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total noncurrent liabilities                                                                                                                                                         |  |                  | 562,938  |   |                          |   | 635,310  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities                                                                                                                                                                    |  |                  | 636,387  |   |                          |   | 706,769  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|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, 35,310,012 and 35,475,227 shares issued and outstanding at
December 31, 2007 and March 31, 2008, respectively |  |                  | 353      |   |                          |   | 355      |  
|Additional paid-in capital                                                                                                                                                           |  |                  | 589,389  |   |                          |   | 590,130  |  
|Accumulated other comprehensive income                                                                                                                                               |  |                  | (13,782  | ) |                          |   | (28,806  | )
|Accumulated deficit                                                                                                                                                                  |  |                  | (610,910 | ) |                          |   | (614,104 | )
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total stockholders deficit                                                                                                                                                          |  |                  | (34,950  | ) |                          |   | (52,425  | )
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  
|Total liabilities and stockholders equity                                                                                                                                           |  | $                | 601,437  |   |                          | $ | 654,344  |  
|                                                                                                                                                                                     |  |                  |          |   |                          |   |          |  

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 EndedMarch 31, |           
|                                                                       |  | 2007                        |            |   | 2008 |  
|OPERATING REVENUES:                                                    |  |                             |            |   |      |   |            |  
|Video                                                                  |  | $                           | 30,718     |   |      | $ | 42,364     |  
|Voice                                                                  |  |                             | 21,067     |   |      |   | 34,722     |  
|Data                                                                   |  |                             | 16,276     |   |      |   | 22,643     |  
|Other                                                                  |  |                             | 958        |   |      |   | 1,608      |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total operating revenues                                               |  |                             | 69,019     |   |      |   | 101,337    |  
|                                                                       |  |                             |            |   |      |   |            |  
|OPERATING EXPENSES:                                                    |  |                             |            |   |      |   |            |  
|Direct costs (excluding depreciation and amortization)                 |  |                             | 20,479     |   |      |   | 31,370     |  
|Selling, general and administrative expenses                           |  |                             | 29,671     |   |      |   | 37,683     |  
|Depreciation and amortization                                          |  |                             | 16,706     |   |      |   | 23,862     |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total operating expenses                                               |  |                             | 66,856     |   |      |   | 92,915     |  
|                                                                       |  |                             |            |   |      |   |            |  
|OPERATING INCOME                                                       |  |                             | 2,163      |   |      |   | 8,422      |  
|                                                                       |  |                             |            |   |      |   |            |  
|OTHER INCOME (EXPENSE):                                                |  |                             |            |   |      |   |            |  
|Interest income                                                        |  |                             | 127        |   |      |   | 231        |  
|Interest expense                                                       |  |                             | (8,156     | ) |      |   | (11,919    | )
|Loss on interest rate derivative instrument                            |  |                             | (455       | ) |      |   | 0          |  
|Loss on adjustment of warrants to market                               |  |                             | (288       | ) |      |   | 0          |  
|Other income (expense), net                                            |  |                             | (85        | ) |      |   | 72         |  
|                                                                       |  |                             |            |   |      |   |            |  
|Total other expense                                                    |  |                             | (8,857     | ) |      |   | (11,616    | )
|                                                                       |  |                             |            |   |      |   |            |  
|NET LOSS                                                               |  | $                           | (6,694     | ) |      | $ | (3,194     | )
|                                                                       |  |                             |            |   |      |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE                                   |  | $                           | (0.19      | ) |      | $ | (0.09      | )
|                                                                       |  |                             |            |   |      |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |  |                             | 34,845,922 |   |      |   | 35,398,097 |  
|                                                                       |  |                             |            |   |      |   |            |  

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, |       
|                                                                                |  | 2007                        |        |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                             |        |   |      |   |         |  
|Net loss                                                                        |  | $                           | (6,694 | ) |      | $ | (3,194  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                   |  |                             | 16,706 |   |      |   | 23,862  |  
|Non-cash stock option compensation                                              |  |                             | 458    |   |      |   | 572     |  
|Accretion of second lien term loan                                              |  |                             | 165    |   |      |   | 0       |  
|Non-cash bank loan interest expense                                             |  |                             | 829    |   |      |   | 728     |  
|Non-cash loss on interest rate derivative instrument                            |  |                             | 455    |   |      |   | 0       |  
|Provision for bad debt                                                          |  |                             | 824    |   |      |   | 1,184   |  
|Loss (gain) on disposition of assets                                            |  |                             | 88     |   |      |   | (68     | )
|Loss on adjustment of warrants to market                                        |  |                             | 288    |   |      |   | 0       |  
|Changes in operating assets and liabilities:                                    |  |                             |        |   |      |   |         |  
|Accounts receivable                                                             |  |                             | 572    |   |      |   | 522     |  
|Prepaid expenses and other                                                      |  |                             | (833   | ) |      |   | (1,937  | )
|Accounts payable                                                                |  |                             | 1,159  |   |      |   | (2,396  | )
|Accrued liabilities                                                             |  |                             | (7,735 | ) |      |   | (1,620  | )
|Unearned revenue                                                                |  |                             | 372    |   |      |   | 172     |  
|                                                                                |  |                             |        |   |      |   |         |  
|Total adjustments                                                               |  |                             | 13,348 |   |      |   | 21,019  |  
|                                                                                |  |                             |        |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                             | 6,654  |   |      |   | 17,825  |  
|                                                                                |  |                             |        |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                             |        |   |      |   |         |  
|Capital expenditures                                                            |  |                             | (8,528 | ) |      |   | (14,275 | )
|Acquisition of businesses, net of cash acquired                                 |  |                             | 0      |   |      |   | (75,140 | )
|MDU signing bonuses and other intangible expenditures                           |  |                             | (40    | ) |      |   | (653    | )
|Proceeds from sale of property                                                  |  |                             | 51     |   |      |   | 80      |  
|Change in restricted cash                                                       |  |                             | 425    |   |      |   | 0       |  
|                                                                                |  |                             |        |   |      |   |         |  
|Net cash used in investing activities                                           |  |                             | (8,092 | ) |      |   | (89,988 | )
|                                                                                |  |                             |        |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                             |        |   |      |   |         |  
|Proceeds from long term debt                                                    |  |                             | 0      |   |      |   | 59,000  |  
|Principal payments on debt and short-term borrowings                            |  |                             | (569   | ) |      |   | (1,696  | )
|Expenditures related to issuance of long term debt                              |  |                             | (413   | ) |      |   | (205    | )
|Stock options exercised                                                         |  |                             | 510    |   |      |   | 171     |  
|                                                                                |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                             |  |                             | (472   | ) |      |   | 57,270  |  
|                                                                                |  |                             |        |   |      |   |         |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                       |  |                             | (1,910 | ) |      |   | (14,893 | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                             | 11,577 |   |      |   | 46,448  |  
|                                                                                |  |                             |        |   |      |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |  | $                           | 9,667  |   |      | $ | 31,555  |  
|                                                                                |  |                             |        |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                             |        |   |      |   |         |  
|Cash paid during the periods for interest                                       |  | $                           | 11,657 |   |      | $ | 11,301  |  
|                                                                                |  |                             |        |   |      |   |         |  
|Cash paid during the periods for income taxes                                   |  | $                           | 0      |   |      | $ | 0       |  
|                                                                                |  |                             |        |   |      |   |         |  
|Non-cash financing activities:                                                  |  |                             |        |   |      |   |         |  
|Debt acquired in capital lease transactions                                     |  | $                           | 0      |   |      | $ | 788     |  
|                                                                                |  |                             |        |   |      |   |         |  
|Detail of acquisition:                                                          |  |                             |        |   |      |   |         |  
|Accounts receivables                                                            |  |                             | 0      |   |      |   | 644     |  
|Prepaid expenses                                                                |  |                             | 0      |   |      |   | 75      |  
|Property, plant and equipment                                                   |  |                             | 0      |   |      |   | 18,869  |  
|Goodwill                                                                        |  |                             | 0      |   |      |   | 54,293  |  
|Customer base                                                                   |  |                             | 0      |   |      |   | 2,369   |  
|Accounts payable                                                                |  |                             | 0      |   |      |   | (583    | )
|Accrued liabilities                                                             |  |                             | 0      |   |      |   | (527    | )
|                                                                                |  |                             |        |   |      |   |         |  
|Cash paid for acquisition, net of cash acquired of $459                         |  | $                           | 0      |   |      | $ | 75,140  |  
|                                                                                |  |                             |        |   |      |   |         |  

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, 2008

(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 owns and operates an advanced interactive broadband network and provide residential and business customers broadband communications services, including analog
and digital cable television, local and long-distance telephone, high-speed Internet access, and broadband carrier services to various markets in the southeastern and midwestern United States. Certain 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 subsidiaries are subject to regulation by the Federal Communications Commission.

2. BASIS OF PRESENTATION

The accompanying unaudited
condensed consolidated financial statements of the Company include the accounts of the Company and all of its subsidiaries and 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 GAAP 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, 2007. The Company operates as one operating segment.

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

On January 4, 2008, the Company completed its acquisition of Graceba Total Communications Group, Inc. (Graceba), a voice, video and high-speed Internet broadband services provider in Dothan, Alabama.
The financial position and results of operations for Graceba are included in the Companys consolidated financial statements since the date of acquisition.

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, useful lives of property, plant and equipment, 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 April 2008, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position (FSP) No. 142-3, Determination of Useful Life of Intangible Assets. FSB No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions in determining the
useful life of a recognized intangible asset under FAS No. 142 Goodwill and Other Intangible Assets. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company does not
expect that the adoption of FSP No. 142-3 will have a material impact on its results of operations or financial position.

In March 2008, the FASB
issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS No. 161 requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial reporting on those activities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect
that the adoption of SFAS No. 161 will have a material impact on its results of operations or financial position.

In December 2007, the FASB issued
SFAS No. 141R, Business Combinations and SFAS No. 160, Consolidations. These statements establish principles and requirements for how an acquirer in a business combination recognizes and measures the assets



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acquired, liabilities assumed, and any noncontrolling interest (previously referred to as minority interest) in the acquiree. SFAS No. 141R and SFAS
No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited.

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 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 adoption of SFAS No. 159 did not have a material impact on the Companys results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. 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. In February 2008, the FASB issued FSP 157-2 Partial Deferral of the Effective Date of Statement 157. FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and
liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 did not have a
material impact on the Companys results of operations or financial position.

4. CASH

Cash

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

Restricted Cash

Restricted cash is presented as a current asset since the associated maturity dates expire within
one year of the balance sheet date. As of December 31, 2007 and March 31, 2008, the Company had $1,459 of cash that is restricted in use, $590 of which the Company has pledged as collateral related to certain insurance, franchise and
surety bond agreements. The remaining $869 is in escrow in connection with the September 7, 2007 sale of the Companys telephone directory business to Yellow Book USA. The escrow related to the sale of discontinued operations will be paid
out September 2008, subject to any indemnification claims by Yellow Book USA.

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, 2008 impairment test.

6. DEBT

On September 12, 2005, the Company entered into an interest rate cap agreement for a notional amount of $280,000 to cap its variable LIBOR rate at 5%, mitigating
interest rate risk on its then outstanding first and second lien term loans. The Company has recorded a loss related to the interest rate cap agreement of $455 for the three months ended March 31, 2007. The changes in the fair value of the cap
agreement were recorded as a Loss on interest rate derivative instrument in other income (expense) since the cap rate agreement was not designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities. On April 18, 2007, the Company unwound its existing interest rate cap agreement for $716 cash proceeds.

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

On April 18, 2007, the Company entered into a new interest
rate swap contract to mitigate interest rate risk on a notional amount of $555,000 amortizing 1% annually. The swap agreement, which became effective May 3, 2007, fixes 100% of the floating rate debt at 4.977% until July 3, 2010. The
interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair value of the swap agreement are recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and the swap
in variable to fixed interest rate is recorded as Interest Expense on the statement of operations when the interest is incurred. The Company assesses for ineffectiveness on its derivative instruments on a quarterly basis and there was no
ineffectiveness as of March 31, 2008.

On January 4, 2008, the Company entered into a First Amendment to the Amended and Restated Credit
Agreement (the Credit Agreement) which provides for a $59,000 incremental term loan used to fund the $75,000 Graceba acquisition purchase price. The term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1% per
annum, payable quarterly, with a June 30, 2012 maturity date. In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $59,000 amortizing 1% annually. The swap
agreement, which became effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. Changes in the fair value of the swap agreement are recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and the swap in variable to fixed interest rate is
recorded as Interest Expense on the statement of operations when the interest is incurred. The Company assesses for



7



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ineffectiveness on its derivative instruments on a quarterly basis and there was no ineffectiveness as of March 31, 2008.

Long-term debt at December 31, 2007 and March 31, 2008 consisted of the following:



|                                                                                                                                                                                                                        |  |                  |         |               |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|                                                                                                                                                                                                                        |  | December 31,2007 |         | March 31,2008
|First Lien term loan, at a rate of LIBOR plus 2.25%, with $5,550 annual principal amortization, interest and principal payable quarterly with
final principal and any unpaid interest due June 30, 2012.                |  | $                | 552,225 |               | $ | 550,837
|                                                                                                                                                                                                                        |  |                 
|First Amendment incremental term loan, at a rate of LIBOR plus 2.75%, with $590 annual principal amortization, interest and principal payable
quarterly with final principal and any unpaid interest due June 30, 2012. |  |                  | 0       |               |   | 58,853 
|                                                                                                                                                                                                                        |  |                 
|Capitalized lease obligations, at rates between 6.9% and 8.5%, with monthly principal and interest payments through February
2013.                                                                                      |  |                  | 3,093   |               |   | 3,720  
|                                                                                                                                                                                                                        |  |                  |         |               |   |        
|                                                                                                                                                                                                                        |  |                 
|Total debt                                                                                                                                                                                                              |  |                  | 555,318 |               |   | 613,410
|                                                                                                                                                                                                                        |  |                 
|Less current portion of long term debt                                                                                                                                                                                  |  |                  | 6,162   |               |   | 6,906  
|                                                                                                                                                                                                                        |  |                  |         |               |   |        
|                                                                                                                                                                                                                        |  |                 
|Total long-term debt, net of current portion                                                                                                                                                                            |  | $                | 549,156 |               | $ | 606,504
|                                                                                                                                                                                                                        |  |                  |         |               |   |        

The first lien and incremental term loans are guaranteed by all of the Companys subsidiaries. The term loans
are also guaranteed by first liens on all of the Companys assets and the assets of its guarantor subsidiaries.

The Credit Agreement contains
customary events of default. The Credit Agreement also contains customary representations and warranties and various affirmative and negative covenants, including:



| |  |  | limitations on the incurrence of additional debt;
| | - |  | -------------------------------------------------



| |  |  | limitations on the incurrence of liens;
| | - |  | ---------------------------------------



| |  |  | restrictions on investments;
| | - |  | ----------------------------



| |  |  | restrictions on the sale of assets;
| | - |  | -----------------------------------



| |  |  | restrictions on the payment of cash dividends on and the redemption or repurchase of capital stock;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | mandatory prepayment of amounts outstanding, as applicable, with excess cash flow, proceeds from asset sales, use of proceeds from the issuance of debt obligations,
proceeds from any equity offerings, and proceeds from casualty losses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on mergers and acquisitions, sale/leaseback transactions and fundamental changes in the nature of our business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on capital expenditures; and
| | - |  | ----------------------------------------



| |  |  | maintenance of minimum ratios of debt to EBITDA (as defined in the credit agreements) and EBITDA to cash interest.
| | - |  | ------------------------------------------------------------------------------------------------------------------

As of March 31, 2008, the Company was in compliance with all of its debt covenants.

The Company had outstanding warrants issued in connection with a 1997 high-yield debt offering with a fair value of $0 at December 31, 2007 and March 31, 2008. The warrants to purchase shares of common stock
for an exercise price of $.10 per share expired in October 2007. Prior to expiration, the Company adjusted 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 on adjustment of warrants to market in other income (expense).

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the provisions of SFAS No. 157 on January 1, 2008. SFAS No. 157
defines fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a three-tier fair value of hierarchy, which prioritizes the inputs used in measuring fair
value as follows:



| |  |  | Level 1  Observable inputs such as quoted prices in active markets for identical assets or liabilities;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Level 3  Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities measured at fair value on a recurring basis are summarized below:



|                             |  |                |        |         |   |         |  |                                       |   |  |   |        
|---------------------------- |  | -------------- | ------ | ------- | - | ------- |  | ------------------------------------- | - |  | - | -------
|                             |  | March 31, 2008
|                             |  | Level 1        |        | Level 2 |   | Level 3 |  | TotalAssets/Liabilities,at Fair Value
|Assets                       |  |                |        |         |   |         |  |                                       |   |  |   |        
|Money market fund            |  | $              | 23,679 |         | $ | 0       |  | $                                     | 0 |  | $ | 23,679 
|                             |  |                |        |         |   |         |  |                                       |   |  |   |        
|Total Assets                 |  | $              | 23,679 |         |   | 0       |  |                                       | 0 |  | $ | 23,679 
|                             |  |                |        |         |   |         |  |                                       |   |  |   |        
|Liabilities                  |  |                |        |         |   |         |  |                                       |   |  |   |        
|Interest rate swap agreement |  | $              | 0      |         | $ | 28,806  |  | $                                     | 0 |  | $ | 28,806 
|                             |  |                |        |         |   |         |  |                                       |   |  |   |        
|Bank loan                    |  | $              | 0      |         | $ | 530,000 |  | $                                     | 0 |  | $ | 530,000
|                             |  |                |        |         |   |         |  |                                       |   |  |   |        
|Total Liabilities            |  | $              | 0      |         | $ | 558,806 |  | $                                     | 0 |  | $ | 558,806
|                             |  |                |        |         |   |         |  |                                       |   |  |   |        

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
are reasonable estimates of their fair values due to the short maturity of these financial instruments.

8. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is subject to
litigation in the normal course of its business. However, in the Companys opinion, there is no legal proceeding pending against it that 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 $1,586 as of March 31, 2008, which
reduces the funds available under the $25,000 five year senior secured revolving loan and letter of credit facility.

9. NONCASH COMPENSATION EXPENSE

The Company adopted SFAS No. 123R, Share-Based Payment on January 1, 2006 which requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on their fair values as the options vest. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model.
There have been no changes in the methodology for calculating the expense since the filing of the Companys Annual Report on Form 10-K for the year ended December 31, 2007.

During the first quarter of 2008, the Company granted 306,374 shares with a market value of $3,350. The shares vest equally over the next four years. The Company has recognized stock-based compensation of $572 and
$458 for the three months ended March 31, 2008 and 2007, respectively.

10. INCOME TAXES

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in 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. At the date of adoption, and as of March 31, 2008, the Company did not have a liability for unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2008, the Company made no provisions for
interest or penalties related to uncertain tax positions.

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 2004 through 2007 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 2004 through 2007 tax years remain open for examination by the tax authorities under a four year statute of limitations.



9



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##### Table of Contents

11. ACQUISITIONS

PRAIRIEWAVE HOLDINGS, INC.

On April 3, 2007, the Company completed its acquisition of PrairieWave, 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 is a strategic acquisition that combines companies with similar
business models and philosophies such as operating in secondary and tertiary markets, servicing bundled customers, providing solid financial margins, and delivering industry-leading customer service.

The Company used the proceeds of the Amended and Restated Credit Agreement to fund the $255,000 purchase price and related transaction costs of the PrairieWave
acquisition, as well as refinance all amounts outstanding under the Companys existing first and second lien credit facilities dated June 29, 2005. The financial position and results of operations for PrairieWave are included in the
Companys presented consolidated financial statements since the date of acquisition. The total purchase price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $256,174. Goodwill represents the
excess of the cost of the business acquired over fair value or net identifiable assets at the date of acquisition. Since the Company purchased 100% of the outstanding stock of PrairieWave, none of the Goodwill is deductible for tax purposes.

The following table summarizes the allocation of purchase price to the fair values of the assets acquired, net of liabilities and direct acquisition costs
as of March 31, 2008. Future allocation adjustments may be required.



|                                               |  |               |        
|---------------------------------------------- |  | ------------- | -------
|                                               |  | March 31,2008
|Assets acquired:                               |  |               |        
|Accounts receivable                            |  | $             | 6,287  
|Prepaid expenses                               |  |               | 1,322  
|Property, plant and equipment                  |  |               | 197,726
|Investments                                    |  |               | 1,293  
|Goodwill                                       |  |               | 57,816 
|Customer base                                  |  |               | 4,402  
|Intangible and other assets                    |  |               | 1,234  
|                                               |  |               |        
|Total assets acquired                          |  |               | 270,080
|Liabilities assumed:                           |  |               |        
|Accounts payable                               |  |               | 7,414  
|Accrued liabilities                            |  |               | 3,022  
|Unearned revenue                               |  |               | 3,470  
|                                               |  |               |        
|Total liabilities assumed                      |  |               | 13,906 
|                                               |  |               |        
|Purchase price, net of cash acquired of $2,680 |  | $             | 256,174
|                                               |  |               |        

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



|                                  |  |                            |      |   |                 |   |      |  
|--------------------------------- |  | -------------------------- | ---- | - | --------------- | - | ---- | -
|                                  |  | Severancepay and staybonus |      |   | Rebrandingcosts |  
|Acquisition accrual               |  | $                          | 803  |   |                 | $ | 778  |  
|Payments                          |  |                            | (714 | ) |                 |   | (272 | )
|                                  |  |                            |      |   |                 |   |      |  
|Accrual Balance at March 31, 2008 |  | $                          | 89   |   |                 | $ | 506  |  
|                                  |  |                            |      |   |                 |   |      |  

GRACEBA TOTAL COMMUNICATIONS GROUP, INC.

On January 4, 2008, the Company completed its stock acquisition of Graceba, a voice, video, and high-speed Internet broadband services provider in Dothan, Alabama. The Companys purchase of Graceba is a
strategic acquisition that fits well in its concentrated Southeastern footprint and combines companies with similar business models and philosophies such as operating in secondary and tertiary markets, servicing bundled customers, providing solid
financial margins, and delivering industry-leading customer service.

The Company used the $59,000 proceeds of the First Amendment to the Amended and
Restated Credit Agreement and cash on hand to fund the $75,000 purchase price. The financial position and results of operations for Graceba are included in the Companys presented consolidated financial statements since the date of acquisition.
The total purchase price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $75,128. Goodwill represents the excess of the cost of the business acquired over fair value or net identifiable assets at the
date of acquisition. Since the Company purchased 100% of the outstanding stock of Graceba, none of the Goodwill is deductible for tax purposes.

The
following table summarizes the allocation of purchase price to the fair values of the assets acquired, net of liabilities and direct acquisition costs as of the acquisition date. Future allocation adjustments may be required.



10



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##### Table of Contents

|                                               |  |                |       
|---------------------------------------------- |  | -------------- | ------
|                                               |  | January 4,2008
|Assets acquired:                               |  |                |       
|Accounts receivable                            |  | $              | 644   
|Prepaid expenses                               |  |                | 75    
|Property, plant and equipment                  |  |                | 18,869
|Goodwill                                       |  |                | 54,281
|Customer base                                  |  |                | 2,369 
|                                               |  |                |       
|Total assets acquired                          |  |                | 76,238
|Liabilities assumed:                           |  |                |       
|Accounts payable                               |  |                | 583   
|Accrued liabilities                            |  |                | 527   
|                                               |  |                |       
|Total liabilities assumed                      |  |                | 1,110 
|                                               |  |                |       
|Purchase price, net of cash acquired of $2,680 |  | $              | 75,128
|                                               |  |                |       

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



|                                  |  |                            |    |                 |   |     |  
|--------------------------------- |  | -------------------------- | -- | --------------- | - | --- | -
|                                  |  | Severancepay and staybonus |    | Rebrandingcosts |  
|Acquisition accrual               |  | $                          | 37 |                 | $ | 245 |  
|Payments                          |  |                            | 0  |                 |   | (12 | )
|                                  |  |                            |    |                 |   |     |  
|Accrual Balance at March 31, 2008 |  | $                          | 37 |                 | $ | 233 |  
|                                  |  |                            |    |                 |   |     |  

12. UNAUDITED PRO FORMA RESULTS OF OPERATIONS

The following unaudited pro forma consolidated results of operations for the three months ended March 31, 2007 and 2008 assume that the acquisitions of PrairieWave and Graceba occurred on January 1 of the
presented years. The unaudited pro forma information is presented for informational purposes only and may not be indicative of the actual results of the operations had the acquisition occurred on the assumed date, nor is the information necessarily
indicative of future results of operations.



|                                     |  |                              |        |   |                              |   |         |  
|------------------------------------ |  | ---------------------------- | ------ | - | ---------------------------- | - | ------- | -
|                                     |  | 3 months endedMarch 31, 2007 |        |   | 3 months endedMarch 31, 2008 |  
|Operating revenues                   |  | $                            | 96,737 |   |                              | $ | 101,337 |  
|Loss before extraordinary items      |  |                              | (7,016 | ) |                              |   | (3,194  | )
|Net loss                             |  |                              | (7,016 | ) |                              |   | (3,194  | )
|Basic and diluted net loss per share |  |                              | (.20   | ) |                              |   | (.09    | )



11



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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, 2007, 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 were formed as a Delaware corporation in September 1998, and began trading publicly on the Nasdaq National Market in December 2003. We are a fully integrated provider of video, voice, data and advanced
communications services to residential and business customers in ten markets in the Southeastern United States and two markets in the Midwestern United States. We provide a full suite of video, voice and data services in Dothan, Huntsville and
Montgomery, Alabama; Panama City and portions of Pinellas County, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; Knoxville, Tennessee; and Rapid City and Sioux Falls, South Dakota, as well as portions of Minnesota
and Iowa. Our primary business is the delivery of bundled communication services over our own network. In addition to our bundled package offerings, we sell these services on an unbundled basis.

We have built our business through:



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



| |  |  | organic growth of connections through increased penetration of services to new marketable homes and our existing customer base, along with new service offerings;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | acquisitions of other broadband companies.
| | - |  | ------------------------------------------

The following is a discussion of our consolidated financial condition and results of operations for the three months ended March 31, 2008, 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 Quarterly Report on Form 10-Q.

Acquisition

On January 4, 2008, the Company completed its stock acquisition of Graceba Total
Communications Group, Inc. (Graceba), a voice, video and high-speed Internet broadband services provider in Dothan, Alabama. The Companys purchase of Graceba is a



12



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##### Table of Contents

strategic acquisition that fits well in its concentrated Southeastern footprint and combines companies with similar business models and philosophies such as
operating in secondary and tertiary markets, servicing bundled customers, providing solid financial margins, and delivering industry-leading customer service.

The Company used the $59.0 million proceeds of the First Amendment to the Amended and Restated Credit Agreement and cash on hand to fund the $75.0 million purchase price. The financial position and results of operations for Graceba are
included in the Companys consolidated statements since the date of acquisition. The acquisition has been accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations. The total purchase price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $75.1 million.

Homes Passed and Connections

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

The following table
summarizes the number of marketable homes passed and connections as of March 31, 2007 and 2008.



|                        |  |           |  |          
|----------------------- |  | --------- |  | ---------
|                        |  | March 31,
|                        |  | 2007      |  | 2008     
|Connections:(1)         |  |           |  |          
|Video                   |  | 180,876   |  | 234,066  
|Voice:                  |  |           |  |          
|On-net                  |  | 157,818   |  | 240,689  
|Off-net                 |  | 6,154     |  | 5,991    
|Data:                   |  |           |  |          
|High Speed Data         |  | 126,723   |  | 188,102  
|Dial-up                 |  |           |  | 2,625    
|                        |  |           |  |          
|Total connections       |  | 471,571   |  | 671,473  
|                        |  |           |  |          
|Residential connections |  | 418,103   |  | 572,784  
|Business connections    |  | 53,468    |  | 98,689   
|Homes passed            |  | 971,566   |  | 1,121,984
|Marketable homes passed |  | 762,003   |  | 911,787  



|(1) | All of our video connections are provided over our networks. Our voice and data connections consist of both
On-net and Off-net connections. On-net refers to lines provided over our networks. Off-net refers to voice or data connections provided over lines leased from third parties.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

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



13



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##### Table of Contents

Revenues

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



| |  |  | Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from
pay-per-view movies, fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 41.8% of our consolidated revenues for the three months ended
March 31, 2008, compared to 44.5% for the three months ended March 31, 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice mail and
measured and flat rate long-distance service. Voice revenues accounted for approximately 34.3% of our consolidated revenues for the three months ended March 31, 2008, compared to 30.5% for the three months ended March 31, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues.Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted for
approximately 22.3% of our consolidated revenues for the three months ended March 31, 2008, compared to 23.6% for the three months ended March 31, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other revenues.Other revenues result principally from broadband carrier services. Other revenues accounted for approximately 1.6% of our consolidated
revenues for the three months ended March 31, 2008, compared to 1.4% for the three months ended March 31, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, MidContinent Communications 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, Verizon and Qwest 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 Voice over Internet Protocol (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.

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 54.3% for the three months ended March 31, 2008, compared to 49.5%
for the three months ended March 31, 2007. We have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | for these programming services, generally based on the average number of subscribers to the program, although some fees are adjusted based on the total
number of subscribers to the system and/or the system penetration percentage. Since programming cost is partially based on numbers of subscribers, it will increase as we add more subscribers. It will also increase as costs per channel increase over
time.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of voice services. Direct costs of voice services consist primarily of transport cost and network access fees. The direct cost of voice services
as a percentage of voice revenues was approximately 16.0% for the three months ended March 31, 2008, compared to 16.1% for the three months ended March 31, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of data services. Direct costs of data services consist primarily of transport cost and network access fees. The direct cost of data services as
a percentage of data revenue was approximately 5.5% for the three months ended March 31, 2008, compared to 3.7% for the three months ended March 31, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of other services. Direct costs of other services consist primarily of transport cost and network access fees. The direct cost of other services
as a percentage of other revenue was approximately 14.9% for the three months ended March 31, 2008, compared to 17.0% for the three months ended March 31, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pole attachment and other network rental expenses. Pole attachment and other network rental expenses consist primarily of pole attachment rents paid to
utility companies for space on their utility poles to deliver our various services and network hub rents. Pole attachment and other network rental expenses as a percentage of total revenue was approximately 1.3% for the three months ended
March 31, 2008 and 1.6% for the three months ended March 31, 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 hours a day, seven days a week 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.

Results of Operations

Three months ended March 31, 2008
compared to three months ended March 31, 2007

The following table sets forth financial data as a percentage of operating revenues
for the three months ended March 31, 2007 and 2008.



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|                                         |  |                             |   |  |      |  
|---------------------------------------- |  | --------------------------- | - |  | ---- | -
|                                         |  | Three months endedMarch 31, |  
|                                         |  | 2007                        |   |  | 2008 |  
|Operating revenues:                      |  |                             |   |  |      |  
|Video                                    |  | 44                          | % |  | 42   | %
|Voice                                    |  | 31                          |   |  | 34   |  
|Data                                     |  | 24                          |   |  | 22   |  
|Other                                    |  | 1                           |   |  | 2    |  
|                                         |  |                             |   |  |      |  
|Total                                    |  | 100                         |   |  | 100  |  
|Operating expenses:                      |  |                             |   |  |      |  
|Direct costs                             |  | 30                          |   |  | 31   |  
|Selling, operating and administrative    |  | 43                          |   |  | 37   |  
|Depreciation and amortization            |  | 24                          |   |  | 24   |  
|                                         |  |                             |   |  |      |  
|Total                                    |  | 97                          |   |  | 92   |  
|                                         |  |                             |   |  |      |  
|Operating income                         |  | 3                           |   |  | 8    |  
|Interest income                          |  | 0                           |   |  | 0    |  
|Interest expense                         |  | (12                         | ) |  | (11  | )
|Loss on interest rate hedge instrument   |  | (1                          | ) |  | 0    |  
|Loss on adjustment of warrants to market |  | 0                           |   |  | 0    |  
|Other expenses, net                      |  | 0                           |   |  | 0    |  
|                                         |  |                             |   |  |      |  
|Total other expense                      |  | (13                         | ) |  | (11  | )
|                                         |  |                             |   |  |      |  
|Net loss                                 |  | (10                         | ) |  | (3   | )
|                                         |  |                             |   |  |      |  

Revenues. Operating revenues increased 46.8% from $69.0 million for the three months ended
March 31, 2007, to $101.3 million for three months ended March 31, 2008. Operating revenues from video services increased 37.9% from $30.7 million for the three months ended March 31, 2007, to $42.4 million for the same period in
2008. Operating revenues from voice services increased 64.8% from $21.1 million for the three months ended March 31, 2007, to $34.7 million for the same period in 2008. Operating revenues from data services increased 39.1% from $16.3 million
for the three months ended March 31, 2007, to $22.6 million for the same period in 2008. Operating revenues from other services increased 67.8% from $1.0 million for the three months ended March 31, 2007, to $1.6 million for the same
period in 2008.

The increased revenues are due primarily to an increase in the number of connections, from 471,571 as of March 31,
2007, to 671,473 as of March 31, 2008 and rate increases effective in the fourth quarter 2007 and first quarter of 2008. The additional connections resulted primarily from the PrairieWave Holdings, Inc. (PrairieWave) and Graceba
acquisitions and:



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



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



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

Direct Costs. Direct costs increased 53.2% from $20.5 million for the three months ended March 31, 2007, to $31.4 million for the three months ended March 31, 2008. Direct costs of video services increased 51.4% from $15.2
million for the three months ended March 31, 2007, to $23.0 million for the same period in 2008. Direct costs of voice services increased 64.3% from $3.4 million for the three months ended March 31, 2007 to $5.6 million for the same period
in 2008. Direct costs of data services increased 106% from $599,000 for the three months ended March 31, 2007, to $1.2 million for the same period in 2008. Direct costs of other services increased 47.1% from $163,000 for the three months ended
March 31, 2007, to $240,000 for the same period in 2008. Pole attachment and other network rental expenses increased 16.0% from $1.1 million for the three months ended March 31, 2007, to $1.3 million for the same period in 2008. We expect
our cost of services to increase as we add more connections. The increase in direct costs of video services are primarily due to the PrairieWave and Graceba acquisitions and programming costs increases, which have been increasing over the last
several years on an aggregate basis due to an increase in subscribers and on a per subscriber basis due to an increase in costs per program channel. We expect this trend to continue and we may not be able to pass these higher costs on to customers
because of competitive factors, which could adversely affect our cash flow and gross profit. We expect increases in voice, data and other direct costs of services with the additions of leased facilities used to backhaul our traffic to our switching
facilities as connections and data capacity requirements increase.

Selling, general and administrative expenses.Our selling,
general and administrative expenses increased 27.0% from $30.0 million for the three months ended March 31, 2007, to $37.7 million for the three months ended March 31, 2008. The increase in our operating costs, included in selling,
general and administrative expenses, is consistent with our acquisitions of PrairieWave and Graceba and growth in connections and customers in the first quarter of 2008, and consists mainly of increases in salaries and wages, repair and maintenance
and bad debt expense. We incurred one-time charges related to travel and other PrairieWave and Graceba



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integration costs, included in selling, general and administrative expenses, of $310,000 for the three months ended March 31, 2008. Our non-cash stock
option compensation expense, included in selling, general and administrative expenses, increased from $458,000 for the three months ended March 31, 2007, to $572,000 for the three months ended March 31, 2008.

Depreciation and amortization.Our depreciation and amortization increased from $16.7 million for the three months ended March 31, 2007,
to $23.9 million for the three months ended March 31, 2008 primarily due to the PrairieWave and Graceba acquisitions and new capital expenditures.

Interest expense.Interest expense increased from $8.2 million for the three months ended March 31, 2007, to $11.9 million for the three months ended March 31, 2008. The increase in interest
expense is primarily a result of the amendment of our term loan due to the PrairieWave acquisition and the additional incremental loan due to the Graceba acquisition.

Net loss.We incurred a net loss of $6.7 million and $3.2 million for the three months ended March 31, 2007, and 2008, respectively. We expect net losses to decrease as our business matures.

Liquidity and Capital Resources

Overview.

As of March 31, 2008, we had approximately $33.0 million of cash, cash equivalents and restricted cash on our balance sheet. Our net
working deficit on March 31, 2008 was $5.8 million, compared to net working capital of $6.8 million as of December 31, 2007. The reduction in the working capital from December 31, 2007 to March 31, 2008 is primarily due to
using cash on hand of $16.0 million to partially fund the Graceba acquisition purchase price.

On March 14, 2007, the Company entered
into an Amended and Restated Credit Agreement, which provides for a $580.0 million credit facility, consisting of a $555.0 million term loan and a $25.0 million revolving credit facility. On April 3, 2007, the Company received proceeds of the
term loan to fund the PrairieWave acquisition purchase price, refinance the Companys first and second lien credit agreements, and pay transaction costs associated with the transactions. The $555.0 million term loan bears interest at LIBOR plus
2.25% and amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012 maturity date. As of March 31, 2008, $550.8 million is outstanding under the term loan and $1.6 million is outstanding under the revolving credit
facility as unused letter of credits. On April 18, 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $555.0 million amortizing at a rate of 1.0% annually. The swap agreement,
which became effective May 3, 2007, fixes 100% of the floating rate debt at 4.977% until July 3, 2010.

On January 4, 2008,
the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the Credit Agreement), which provides for a $59.0 million incremental term loan. The proceeds of the Credit Agreement were used to fund the $75.0
million Graceba acquisition purchase price. The term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1.0% per annum, payable quarterly, with a June 30, 2012 maturity date. In December 2007, the Company entered into a new
interest rate swap contract to mitigate interest rate risk on a notional amount of $59.0 million amortizing at a rate of 1.0% annually. The swap agreement, which became effective January 4, 2008, fixes 100% of the floating rate debt at 3.995%
until September 30, 2010.

The first lien and incremental term loans are guaranteed by all of the Companys subsidiaries. The
term loans are also guaranteed by first liens on all of the Companys assets and the assets of its guarantor subsidiaries. The Credit Agreement contains customary representations, warranties, various affirmative and negative covenants and
customary events of default.

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,
2008, we are in compliance with all of our debt covenants.

Operating, Investing and Financing Activities.

As of March 31, 2008, we had a net working deficit of $5.8 million, compared to a net working capital of $6.8 million as of December 31, 2007.
The reduction in the working capital from December 31, 2007 to March 31, 2008 is primarily due to using cash on hand of $16.0 million to partially fund the Graceba acquisition purchase price.

Net cash provided by operating activities totaled $6.7 million and $17.8 million for the three months ended March 31, 2007 and 2008, 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;
| | - |  | ------------------------------



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



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



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



| |  |  | non-cash loss on interest rate derivative instrument;
| | - |  | -----------------------------------------------------



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



| |  |  | loss (gain) on disposition of assets; and
| | - |  | -----------------------------------------



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

Net cash used by our investing activities was $8.1 million and $90.0 million for the three months ended March 31, 2007 and 2008, respectively. Our 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 restricted cash returned. Investing activities for the three months ended March 31, 2008 consisted primarily of $75.1 million for the acquisitions of businesses, $14.3
million of capital expenditures and $653,000 of multiple dwelling unit signing bonuses.

Net cash used by our financing activities was
$472,000 for the three months ended March 31, 2007 and net cash provided by financing activities was $57.2 million for the three months ended March 31, 2008. Financing activities for the three months ended March 31, 2007 consisted of
$569,000 in principal payment on debt and $413,000 of expenditures related to the issuance of long-term debt partially offset by $510,000 from the exercise of warrants and stock options. For the three months ended March 31, 2008, financing
activities consisted of $59.0 million in proceeds from long term debt and $171,000 from the exercise of stock options, offset by $1.7 million in principal payments on debt and $205,000 of expenditures related to the issuance of long-term debt.

Capital Expenditures.

We spent
approximately $14.3 million in capital expenditures during the three months ended March 31, 2008, of which $8.6 million related to the purchase and installation of customer premise equipment, $4.4 million related to plant extensions and
enhancements and $1.3 million related to network equipment, billing and information systems and other capital items.

We expect to spend
approximately $50.0 million in capital expenditures during 2008. We believe we will have sufficient cash on hand and cash from internally generated cash flow to cover our planned operating expenses and capital expenditures and to service our debt
during 2008. The credit agreements and covenants on our new debt limit the amount of our capital expenditures on an annual basis.

On
January 4, 2008, the Company completed its acquisition of Graceba, a voice, video and high-speed Internet provider in Dothan, Alabama. The Company used proceeds from the $59.0 million incremental loan and cash on hand to fund the $75.0 million
purchase price and related transactions costs for the Graceba acquisition.

We currently do not intend to expand into other markets or make
acquisitions until the required funding is available.

Recent Accounting Pronouncements

See the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and the Notes to our Consolidated Financial
Statements contained in our Annual Report on Form 10-K.



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

The Company uses interest rate swap contracts to manage the impact of interest rate changes on earnings and operating cash flows. Interest rate swaps involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the
life of the agreements without exchange of the underlying principal amount. The Company believes these agreements are with counter-parties who are creditworthy financial institutions.

The Company has adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (subsequently amended by SFAS
Nos. 137 and 138). 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. For derivatives designated as qualifying cash flow hedges, the effective portion of changes in fair value of the derivatives is initially recognized in other comprehensive income and subsequently reclassified as an
increase or decrease to interest expense in the same periods in which the related interest on the variable-rate debt affects earnings. The ineffective portions are



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recognized directly in earnings. Upon early termination of a derivative instrument that has been designated as a hedge, the resulting gains or losses are
deferred and amortized as adjustments to interest expense of the related debt over the remaining period covered by the terminated instrument. The Company formally documented, designated and assessed the derivative instruments at inception. Based on
criteria listed in SFAS No. 133 pertaining to cash flow derivative instruments that are interest rate swaps, the Company has assessed that the swap agreements are completely effective and therefore there is no ineffectiveness. The Company
assesses for ineffectiveness on a quarterly basis. The Company uses derivative instruments as risk management tools and not for trading purposes.

On May 3, 2007, the Company entered into an interest rate swap contract to mitigate interest rate risk on a notional amount of $555.0 million amortizing at a rate of 1.0% annually. The swap agreement fixes 100% of the floating rate
debt at 4.977% until July 3, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair value of the swap agreement are initially recorded as Accumulated Other Comprehensive Loss
in the equity section of the balance sheet and the swap in variable to fixed interest rate is recorded as Interest Expense on the statement of operations when the interest is incurred. The swap agreement has an estimated fair value of
$(26.7 million) as of March 31, 2008, which approximates the cost to settle the outstanding contract based on dealer quote considering current market rates.

In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $59.0 million amortizing at a rate of 1.0% annually. The swap agreement which became
effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair value of the swap agreement are
initially recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and the swap in variable to fixed interest rate is recorded as Interest Expense on the statement of operations when the
interest is incurred. The swap agreement has an estimated fair value of $(2.1 million) as of March 31, 2008, which approximates the cost to settle the outstanding contract based on dealer quotes considering current market rates.



|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, 2008. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
March 31, 2008, 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, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.



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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, 2007, 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



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##### Table of Contents

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



|               |  |                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit Description                                                                                                                                                                                                                                                                                                                       
|3.1            |  | Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period ended June
30, 2004).                                                                                                                                    
|               | 
|3.3            |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Series X Junior Participating Preferred Stock of Knology, Inc. (Incorporated herein by
reference to Exhibit 3.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                           
|               | 
|3.4            |  | Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                                                                                                                                                                      
|               | 
|4.1            |  | Shareholder Protection Rights Agreement, dated as of July 27, 2005, by and between Knology, Inc. and Wachovia Bank, N.A., acting as Rights Agent (which includes as Exhibit A thereto the Form of
Rights Certificate) (Incorporated herein by reference to Exhibit 4.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).
|               | 
|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 12, 2008 |  | By:           |  | /s/ Rodger L. Johnson                
|             |  |               |  | Rodger L. Johnson                    
|             |  |               |  | President and Chief Executive Officer
|             |  |              
|May 12, 2008 |  | By:           |  | /s/ M. Todd Holt                     
|             |  |               |  | M. Todd Holt                         
|             |  |               |  | Chief Financial Officer              



22