<PAGE>

                                 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 JUNE 30, 2001
                       COMMISSION FILE NUMBER: 333-89179

                                 KNOLOGY, INC.
            (Exact name of registrant as specified in its charter)

                DELAWARE                                 58-2424258
                --------                                 ----------
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)


           KNOLOGY, INC.                                   31833
                                                           -----
        1241 O.G. SKINNER DRIVE                         (Zip Code)
            WEST POINT, GEORGIA
            -------------------
  (Address of principal executive offices)

          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 [_]

   As of June 30, 2001, we had 501,444 shares of common stock, 50,980,459 shares
of Series A preferred stock, 21,180,131 shares of Series B preferred stock, and
37,219,563 shares of Series C preferred stock outstanding.
<PAGE>

                        KNOLOGY, INC. AND SUBSIDIARIES
                          QUARTER ENDED JUNE 30, 2001

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                                   PAGE
<S>                                                                                                                <C>
PART I   FINANCIAL INFORMATION

Item.1   FINANCIAL STATEMENTS................................................................................        2
         Condensed Consolidated Balance Sheets...............................................................        2
         Condensed Consolidated Statements of Operations.....................................................        3
         Condensed Consolidated Statement of Cash Flows......................................................        4
         Notes to Condensed Consolidated Financial Statements................................................        5
ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.................................................................        7
ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........................................       17

PART II  OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS...................................................................................       17
ITEM 2   CHANGES IN SECURITIES AND USE OF PROCEEDS...........................................................       18
ITEM 3   DEFAULTS UPON SENIOR SECURITIES.....................................................................       18
ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................       18
ITEM 5   OTHER INFORMATION...................................................................................       18
ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K....................................................................       18
</TABLE>

                                       1
<PAGE>

ITEM 1. FINANCIAL STATEMENTS

                        KNOLOGY, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 JUNE 30, 2001
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                         June 30,             December 31,
                                                                           2001                   2000
                                                                        ---------             -----------
<S>                                                                     <C>                   <C>
                                            ASSETS

CURRENT ASSETS:
       Cash and cash equivalents                                        $  65,219              $  20,628
       Accounts receivable, net                                            11,860                 10,697
       Affiliate receivable                                                 3,226                  3,326
       Prepaid expenses and other                                           1,192                  1,231
                                                                        ---------              ---------
                    Total current assets                                   81,497                 35,882

PROPERTY, PLANT AND EQUIPMENT, net                                        395,336                377,421

INVESTMENTS                                                                12,013                 11,472

INTANGIBLE AND OTHER ASSETS, net                                           56,200                 64,631
                                                                        ---------              ---------
                    Total assets                                        $ 545,046              $ 489,406
                                                                        =========              =========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Current portion of notes payable                                 $       -              $      12
       Accounts payable                                                    16,542                 30,442
       Accrued liabilities                                                 11,436                 14,028
       Unearned revenue                                                     5,285                  4,318
                                                                        ---------              ---------
                    Total current liabilities                              33,263                 48,800

NONCURRENT LIABILITIES:
       Long-term notes payable                                             15,465                 15,562
       Senior discount notes, net of discount                             373,908                352,054
       Unamortized investment tax credits                                     218                    299
                                                                        ---------              ---------
                    Total noncurrent liabilities                          389,591                367,915

                    Total liabilities                                     422,854                416,715

WARRANTS                                                                    4,726                  4,726

STOCKHOLDERS' EQUITY
       Convertible preferred stock                                          1,094                    721
       Common Stock                                                             5                      4
       Additional paid-in capital                                         357,649                247,730
       Accumulated deficit                                               (241,282)              (180,490)
                                                                        ---------              ---------
                    Total stockholders' equity                            117,466                 67,965
                                                                        ---------              ---------
                    Total liabilities and stockholders' equity          $ 545,046              $ 489,406
                                                                        =========              =========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       2
<PAGE>

                        KNOLOGY, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                           Three Months Ended            Six Months Ended
                                                                                 June 30,                     June 30,
                                                                         2001             2000          2001           2000
                                                                    -------------   -------------  -------------   ------------
<S>                                                                 <C>             <C>            <C>             <C>
OPERATING REVENUES                                                  $      25,452   $     20,254   $      48,958   $     38,994
                                                                    -------------   ------------   -------------   ------------

OPERATING EXPENSES:
       Cost and expenses, excluding depreciation and amortization          26,153         21,853          51,402         41,582
       Depreciation and amortization                                       19,811         14,398          38,424         27,859
                                                                    -------------   ------------   -------------   ------------
                       Total operating expenses                            45,964         36,251          89,826         69,441
                                                                    -------------   ------------   -------------   ------------

OPERATING LOSS                                                            (20,512)       (15,997)        (40,868)       (30,447)

OTHER INCOME AND EXPENSES:
       Interest income                                                        810          1,726           1,929          3,123
       Interest expense                                                   (10,905)        (9,862)        (21,253)       (19,411)
       Other (expense) income, net                                           (210)            70            (600)            73
                                                                    -------------   ------------   -------------   ------------
                       Total other income and expenses                    (10,305)        (8,066)        (19,924)       (16,215)
                                                                    -------------   ------------   -------------   ------------

LOSS BEFORE INCOME TAX BENEFIT                                            (30,817)       (24,063)        (60,792)       (46,662)

INCOME TAX BENEFIT                                                              -              -               -          1,557
                                                                    -------------   ------------   -------------   ------------

NET LOSS                                                            $     (30,817)  $    (24,063)  $     (60,792)  $    (45,105)
                                                                    =============   ============   =============   ============

NET LOSS PER SHARE (Note 3):
       Basic and diluted                                            $       (0.26)  $      (0.33)  $       (0.85)  $      (0.68)
                                                                    =============   ============   =============   ============

WEIGHTED AVERAGE SHARES OUTSTANDING                                   120,182,930     72,090,561     115,127,837     66,677,971
                                                                    =============   ============   =============   =============
</TABLE>



  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                       3
<PAGE>

                        KNOLOGY, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                    Six Months Ended June 30,
                                                                                      2001          2000
                                                                                   ---------    ----------
<S>                                                                                <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net loss                                                                   $ (60,792)     $ (45,105)
        Adjustments to reconcile net loss to net cash
           (used in) provided by operating activities:
              Depreciation and amortization                                           38,424         27,859
              Gain on disposition of assets                                              179             (3)
              Amortization of bond discount                                           21,855          8,576
              Amortization of deferred investment tax credit                             (45)           (36)
              Changes in operating assets and liabilities:
                   Accounts receivable                                                (1,164)          (210)
                   Accounts receivable - affiliate                                       101          4,024
                   Prepaid expenses and other                                              3           (660)
                   Accounts payable                                                  (13,900)         5,365
                   Accrued liabilities and interest                                   (2,593)        11,052
                   Unearned revenue                                                      967           (311)
                                                                                   ---------     ----------
                       Total adjustments                                              43,827         55,656
                                                                                   ---------     ----------
                       Net cash (used in) provided by operating activities           (16,965)        10,551
                                                                                   ---------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Capital expenditures, net of retirements                                     (47,260)       (57,500)
        Investments                                                                     (541)        (4,701)
        Franchise cost expenditures, net                                                (836)          (250)
        Proceeds from sales of assets                                                     81            208
        Proceeds from sales of marketable securities, net                                  -          6,069
                                                                                   ---------     ----------
                   Net cash used in investing activities                             (48,556)       (56,174)
                                                                                   ---------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Advances to affiliates                                                             -            (68)
        Proceeds from exercised stock options                                            358              -
        Proceeds from private placement, net of offering expenses                    109,758        131,119
        Principal payments on debt                                                        (4)            (7)
                                                                                   ---------     ----------
                   Net cash provided by financing activities                         110,112        131,044
                                                                                   ---------     ----------

NET INCREASE IN CASH                                                                  44,591         85,421

CASH AT BEGINNING OF PERIOD                                                           20,628          7,818
                                                                                   ---------     ----------

CASH AT END OF PERIOD                                                              $  65,219     $   93,239
                                                                                   =========     ==========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

        Cash paid during the period for interest                                   $     819     $      494
</TABLE>

                                       4
<PAGE>

                        KNOLOGY, INC. AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 2001
                                  (UNAUDITED)

            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.    ORGANIZATION AND NATURE OF BUSINESS

      Knology Inc. (the "Company") offers residential and business customers
   broadband communications services, including analog and digital cable
   television, local and long distance telephone, high-speed Internet access
   service, and broadband carrier services, using advanced interactive broadband
   networks. We own, operate and manage interactive broadband networks in seven
   metropolitan areas: Montgomery and Huntsville, Alabama; Columbus and Augusta,
   Georgia; Panama City, Florida; Charleston, South Carolina; and Knoxville,
   Tennessee. We also provide local telephone services in West Point, Georgia,
   and Lanett and Valley, Alabama. Our local telephone service in this area is
   provided over a traditional copper wire network while our cable and Internet
   services are provided over our broadband network. We plan to expand to
   additional mid-to-large-sized cities in the southeastern United States.

2.    BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements
   of the Company have been prepared in accordance with accounting principles
   generally accepted in the United States for interim financial information and
   with the instructions to Form 10-Q and Article 10 of Regulation S-X.
   Accordingly, they do not include all of the information and footnotes
   required by generally accepted accounting principles for complete financial
   statements. In the opinion of management, all adjustments considered
   necessary for the fair presentation of the financial statements have been
   included, and the financial statements present fairly the financial position
   and results of operations for the interim periods presented. Operating
   results for the three and six months ended June 30, 2001 are not necessarily
   indicative of the results that may be expected for the year ended December
   31, 2001. 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, 2000.

      Certain amounts included in the 2000 financial statements have been
   reclassified to conform to the 2001 financial statements.

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   NET LOSS PER SHARE

      In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." This
   statement requires the disclosure of basic net income (loss) per share and
   diluted net income (loss) per share. Basic net income (loss) per share is
   computed by dividing net income (loss) by the weighted-average number of
   common shares outstanding during the period. Diluted net loss per share gives
   effect to all potentially dilutive securities. As the Company has no
   significant common stock outstanding, the convertible preferred stock is
   assumed to be converted for purposes of this calculation. The Company's other
   potentially dilutive securities, including stock options and stock warrants,
   are not included in the computation of diluted net loss per share as their
   effect is antidilutive.

      In January 2001, a non-cash dividend was recognized in conjunction with
   the issuance of Series C preferred stock and the amendment of the conversion
   ratios of the Company's Series A preferred stock and Series B preferred stock
   into common stock (Note 4). The following table represents a reconciliation
   of the net loss per the condensed consolidated statement of operations to the
   net loss attributable to equivalent common stockholders:

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30,
    <S>                                                             <C>
    Net loss.....................................................      $    (60,792)
    Non-cash distribution to preferred stockholders..............           (36,579)
                                                                       ------------
    Net loss attributable to equivalent common stockholders......      $    (97,371)
    Weighted average shares outstanding..........................       115,127,837
    Net loss per share...........................................      $      (0.85)
</TABLE>

   NEW ACCOUNTING PRONOUNCEMENTS

       The Financial Accounting Standards Board ("FASB") issued SFAS No. 141,
   "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
   Assets" in June 2001. SFAS No. 141 requires all business combinations
   initiated after June 30, 2001 to be accounted for using the purchase method.
   SFAS No. 142 provides that goodwill is no longer subject to amortization over
   its estimated useful life. It requires that goodwill be assessed for
   impairment on at least an annual basis by applying a fair-value-based test.
   The Company's required adoption date is January 1, 2002, at which time the
   Company will no longer record amortization of goodwill and will begin an
   impairment analysis of goodwill in accordance with SFAS No. 142.

4.     EQUITY TRANSACTIONS

       In February 2000, ITC Holding Company, Inc., in connection with a
   reorganization of certain of its businesses, distributed to its option
   holders options to purchase 6,258,036 shares of our Series A preferred stock,
   and distributed to its shareholders all of its 43,211,531 shares of our
   Series A preferred stock. As a result of this distribution, we are no longer
   a subsidiary of ITC Holding. The shares of Series A preferred stock are
   convertible into shares of our common stock at any time at the option of the
   holder and automatically upon the completion of a firm-commitment
   underwritten public offering in which (1) if the offering is completed in
   2001, the price per share is at least $4.00; if the offering is completed in
   2002, the price per share is at least $5.00; and if the offering is completed
   in 2003 or thereafter, the price per share is at least $6.00, (2) the gross
   proceeds to us are at least $50 million and (3) the common stock sold in the
   offering is listed on the Nasdaq National Market or on a national securities
   exchange (a "Qualified Public Offering"). The shares of Series A preferred
   stock are currently convertible into shares of common stock on a
   one-to-1.0371 basis, subject to customary anti-dilution adjustments.

       On February 7, 2000, we completed a private placement of 21,180,131
   shares of our Series B preferred stock to a small group of institutional
   investors and certain of our executive officers for approximately $100.6
   million. The shares of Series B preferred stock are convertible into shares
   of our common stock at any time at the option of the holder and automatically
   upon the completion of a Qualified Public Offering. The shares of Series B
   preferred stock are currently convertible into shares of common stock on a
   one-to-1.4865 basis, subject to customary anti-dilution adjustments.

       On January 12, 2001, we completed a private placement of 31,166,667
   shares of our Series C preferred stock to a small group of institutional
   investors for approximately $93.5 million. On March 30, 2001, we completed
   another private placement of 1,885,996 shares of Series C preferred stock to
   a small group of accredited investors for approximately $5.7 million. On
   April 13, 2001 the Company issued to a small group of accredited investors,
   in a private placement, 2,621,930 shares of its Series C preferred stock, at
   a purchase price of $3.00 per share, for aggregate proceeds of approximately
   $7.9 million. On June 29, 2001 the Company issued to a small group of
   accredited investors, in a private placement, 1,544,970 shares of its Series
   C preferred stock, at a purchase price of $3.00 per share, for aggregate
   proceeds of approximately $4.6 million. The shares of Series C preferred
   stock are convertible into shares of our common stock at any time at the
   option of the holder and automatically upon the completion of a Qualified
   Public Offering. The shares are currently convertible into shares of common
   stock on a one-to-one basis, subject to customary anti-dilution adjustments.

       In connection with the January 12, 2001 private placement of Series C
   preferred stock, the Company amended its amended and restated certificate of
   incorporation to adjust the ratios at which the Series A preferred stock and
   Series B preferred stock convert into common stock to the ratios set forth
   above. With respect to the amendment of the conversion ratios of the Series A
   preferred stock and Series B preferred stock, the Company recognized a
   non-cash dividend in January 2001 (Note 3).

                                       6
<PAGE>

5.     SEGMENT INFORMATION

       Effective January 1998, the Company adopted SFAS 131, "Disclosures about
   Segments of an Enterprise and Related Information," which established revised
   standards for the reporting of financial and descriptive information about
   operating segments in financial statements.

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

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

       Revenues by broadband communications service are as follows:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED JUNE 30,              SIX MONTHS ENDED JUNE 30,

                                                   2001                 2000                2001               2000
                                                   ----                 ----                ----               ----
<S>                                             <C>                  <C>                <C>                <C>
Video....................................       $ 11,915             $ 10,522            $ 23,152           $ 20,615
Voice....................................         10,630                8,312              20,619             15,985
Data and other...........................          2,907                1,420               5,187              2,394
                                                --------             --------            --------           --------
Consolidated revenues....................       $ 25,452             $ 20,254            $ 48,958           $ 38,994
                                                ========             ========            ========           ========
</TABLE>

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 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 IMPACTING OUR INDUSTRY AND MARKETS, (4)
THAT NEEDED FINANCING WILL NOT BE AVAILABLE IF AND AS NEEDED, (5) THAT A
SIGNIFICANT CHANGE IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR
SUCH THAT CONSUMER AND CORPORATE SPENDING ARE MATERIALLY IMPACTED, AND (6) 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, 2000, WHICH ARE
INCORPORATED HEREIN BY REFERENCE. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN
OF THE PRINCIPAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN.

       The following is a discussion of our consolidated financial condition and
results of operations for the three and six months ended June 30, 2001 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 notes thereto and other financial data included
elsewhere in this Form 10-Q.

GENERAL

       Knology, Inc. was formed in September 1998 to enable ITC Holding to
complete a reorganization of some of its subsidiaries. In November 1999, in
order to effectuate the reorganization:

-      ITC Holding contributed to Knology, Inc.:

       -  its 85% interest in Knology Broadband, Inc. (formerly Knology
          Holdings, Inc.);

                                       7
<PAGE>

       -  all of the outstanding capital stock of Interstate Telephone Company,
          Inc., Valley Telephone Company, Inc., Globe Telecommunications, Inc.
          and ITC Globe, Inc., referred to as our "telephone operations group;"

       -  a note in the principal amount of $9.6 million; and

       -  its 6% interest in ClearSource, Inc., subscription rights to purchase
          ClearSource shares and $5.6 million in cash to purchase the additional
          ClearSource shares; and

       -  the holders of the remaining 15% interest in Knology Broadband
          exchanged that interest for shares of Knology, Inc. and the holders of
          outstanding warrants to purchase Knology Broadband preferred stock
          exchanged those warrants for warrants to purchase Series A preferred
          stock of Knology, Inc.

       As a result of the reorganization, ITC Holding held a 90% interest in
us, which it distributed to its stockholders in February 2000.

       In January 2000, InterCall, Inc., a subsidiary of ITC Holding, loaned us
$29.7 million to fund our capital expenditures and working capital. The loan,
which had a maturity date of March 31, 2000, provided that InterCall could elect
to convert it into options to purchase our Series A preferred stock. In February
2000, InterCall converted the loan into options to purchase 6,258,036 shares of
our Series A preferred stock, and we issued to ITC Holding a note under which we
will pay ITC Holding any proceeds from option exercises received by us,
including an amount equal to the exercise price for cashless exercises. The
options were distributed to ITC Holding's option holders on February 4, 2000.

SIGNIFICANT ACCOUNTING POLICIES

       The Financial Accounting Standards Board ("FASB") issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets"
in June 2001. SFAS No. 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method. SFAS No. 142
provides that goodwill is no longer subject to amortization over its estimated
useful life. It requires that goodwill be assessed for impairment on at least an
annual basis by applying a fair-value-based test. The Company's required
adoption date is January 1, 2002, at which time the Company will no longer
record amortization of goodwill and will begin an impairment analysis of
goodwill in accordance with SFAS No. 142.

REVENUES AND EXPENSES

       We have incurred net losses in each quarter since our inception, and as
of June 30, 2001, the accumulated deficit had reached approximately $241.3
million. We anticipate incurring net losses during the next several years while
continuing to expand operations, and as a result of substantially increased
depreciation and amortization from the construction of the new networks and
operating expenses incurred in building the customer base. There can be no
assurance that growth in revenue or the subscriber base will continue or that we
will be able to achieve or sustain profitability or positive cash flow.

       We can group our revenues into the following categories:

       -  Video revenues. Our video revenues consist of fixed monthly fees for
          expanded basic, premium and digital cable television services, as well
          as fees from pay-per-view movies and events such as boxing matches and
          concerts, that involve a charge for each viewing. Video revenues
          accounted for approximately 46.8% and 47.3% of our consolidated
          revenues for the three and six months ended June 30, 2001 compared to
          52.0% and 52.9% for the three and six months ended June 30, 2000.

       -  Voice revenues. Our voice revenues consist primarily of fixed monthly
          fees for local service, enhanced services such as call waiting and
          voice mail, and usage fees for long distance service. Voice revenues
          accounted for approximately 41.8% and 42.1% of our consolidated
          revenues for the three and six months ended June 30, 2001 compared to
          41.0% and 41.0% for the three and six months ended June 30, 2000.

       -  Data revenues and other revenues. Our data revenues consist primarily
          of fixed monthly fees for Internet access service and rental of cable
          modems. Other revenues resulted principally from broadband carrier
          services. These combined revenues accounted for approximately 11.4%
          and 10.6% of our consolidated revenues for the three and six months
          ended June 30, 2001 compared to 7.0% and 6.1% for the three and six
          months ended June 30, 2000.

                                       8
<PAGE>

          As we continue to sell bundled services, we expect that our voice and
       data and other revenues will continue to increase at a higher rate
       compared to video revenues. Accordingly, we expect that our voice and
       data and other revenues will represent a higher percentage of
       consolidated revenues in the future.

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

Cost of services include:

   -  Video cost of services. Video cost of services consist primarily of
      monthly fees to the National Cable Television Cooperative and other
      programming providers, and are generally based on the average number of
      subscribers to each program. Programming costs are our largest single cost
      and we expect this to continue. Since programming cost is partially based
      on the numbers of subscribers, it will increase as we add more
      subscribers. Additionally, programming costs will increase as cost per
      program channel increases over time.

   -  Voice, Data and Other cost of service. Voice, data and other cost of
      services consist primarily of transport cost and network access fees.

   Selling, operations and administrative expenses include:

   -  Sales and marketing costs. Sales and marketing costs 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 and maintenance monitoring.

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

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

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

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

   We have experienced operating losses as a result of the expansion of our
advanced interactive broadband communications networks and services into new and
existing markets. Management expects to continue to focus on increasing the
customer base and expanding our broadband operations. Accordingly, we expect
that we will continue to experience operating losses in accordance with the
business plan. While management expects our expansion plans to result in
profitability, there can be no assurance that growth in our revenue or customer
base will continue or that we will be able to achieve or sustain profitability
and/or positive cash flow.

                                       9
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000

The following table sets forth financial data as a percentage of operating
revenues for the three months ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                        JUNE 30,
                                                                                2001              2000
                                                                                ----              ----
                 <S>                                                            <C>               <C>
                 Operating revenues:.....................................
                      Video..............................................         47%               52%
                      Voice..............................................         42                41
                      Data and other.....................................         11                 7
                                                                                ----              ----
                         Total...........................................        100               100
                 Operating expenses:
                      Cost and expenses, excluding
                       depreciation and amortization.....................        103               108
                      Depreciation and amortization......................         78                71
                                                                                ----              ----
                         Total...........................................        181               179
                                                                                ----              ----
                 Operating loss..........................................        (81)              (79)
                 Other income and expenses, net..........................        (40)              (40)
                                                                                ----              ----
                 Net loss................................................       (121)%            (119)%
                                                                                ====              ====
</TABLE>

The following tables set forth certain operating and financial data as of and
for the periods ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                                          AS OF JUNE 30,
                                                        2001             2000             CHANGE          %
                                                        ----             ----             ------          -
<S>                                                    <C>              <C>               <C>           <C>
MARKETABLE HOMES PASSED (1)                            399,958          335,978           63,980        19.0%
CONNECTIONS (2)
     Video........................................     110,131           96,781           13,350        13.8%
                                                       -------          -------           ------        ----
     Voice
        On Net....................................      68,002           46,175           21,827        47.3%
        Off Net...................................       6,581            7,635           (1,054)      (13.8)%
                                                       -------          -------           ------        ----
                                                        74,583           53,810           20,773        38.6%
     Data..........................................     22,779            9,675           13,104       135.4%
                                                       -------          -------           ------        ----
        Total......................................    207,493          160,266           47,227        29.5%
                                                       =======          =======           ======        ====
</TABLE>

(1)  Marketable homes passed are the number of small business and residential
     units, such as single residence homes, apartments and condominium units,
     passed by our broadband networks other than those we believe are covered by
     exclusive arrangements with other providers of competing services.

(2)  All of our video and data connections are provided over our networks. Our
     voice connections consist of both "on net" and "off net" connections. On
     net refers to lines provided over our broadband networks. It includes
     22,697 and 23,573 lines as of June 30, 2000 and 2001, respectively,
     provided using traditional copper telephone lines. Off net refers to
     telephone connections provided over telephone lines leased from third
     parties.

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED
                                                                         JUNE 30,
                                                                    2001          2000          CHANGE          %
                                                                    ----          ----          ------          -
<S>                                                              <C>            <C>           <C>          <C>
OPERATING REVENUES:
     Video..................................................     $ 11,915       $ 10,522       $  1,393       13.2%
     Voice..................................................       10,630          8,312          2,318       27.9%
     Data and other.........................................        2,907          1,420          1,487      104.7%
                                                                 --------       --------       --------    -------
        Total...............................................       25,452         20,254          5,198       25.7%
OPERATING EXPENSES:.........................................
   Cost and expenses, excluding depreciation
     and amortization.......................................       26,153         21,853          4,300       19.7%
   Depreciation and amortization............................       19,811         14,398          5,413       37.6%
                                                                 --------       --------       --------    -------
        Total...............................................       45,964         36,251          9,713       26.8%
                                                                 --------       --------       --------    -------
OPERATING LOSS..............................................      (20,512)       (15,997)        (4,515)      28.2%
OTHER INCOME AND EXPENSES, NET..............................      (10,305)        (8,066)        (2,239)      27.8%
                                                                 --------       --------       --------    -------
NET LOSS....................................................     $(30,817)      $(24,063)      $ (6,754)      28.1%
                                                                 ========       ========       ========    =======
</TABLE>

     Revenues. Operating revenues increased 25.7% from $20.3 million for the
three months ended June 30, 2000, to $25.5 million for the three months ended
June 30, 2001. Operating revenues from video services increased 13.2% from $10.5
million for the three months ended June 30, 2000 to $11.9 million for the same
period in 2001. Operating revenues from voice services increased 27.9% from $8.3
million for the three months ended June 30, 2000 to $10.6 million for the same
period in 2001. Operating revenue from data and other services increased 104.7%
from $1.4 million for the three months ended June 30, 2000 to $2.9 million for
the same period in 2001, $2.6 million of which were revenues from data services
in 2001.

     The increased revenues from voice, video and data and other services are
due primarily to an increase in the number of connections, from 160,266 as of
June 30, 2000 to 207,493 as of June 30, 2001. The additional connections
resulted primarily from:

 .    the extension of our broadband networks in the Augusta and Charleston
     markets;

 .    the upgrade of our existing one-way network to an advanced interactive
     broadband network in Huntsville;

 .    internal growth in connections generated by our sales and marketing
     efforts; and

 .    the construction of a new broadband network in Knoxville.

     Expenses. Operating expenses, excluding depreciation and amortization
increased 19.7% from $21.9 million for the three months ended June 30, 2000, to
$26.2 million for the three months ended June 30, 2001. The increase in our
operating expenses is consistent with the growth in revenues and is a result of
the expansion of our operations, the increase in the number of employees
associated with such expansion and growth into new markets. We expect our
operating expenses to continue to increase as we add more connections. Selling,
operations and administrative expenses will increase operating expenses as we
expand into additional markets. Programming costs, which are our largest single
expense item, have been increasing over the last several years on an aggregate
basis due to an increase in subscribers and on a per subscriber basis due to
increase in costs per program channel. We expect this trend to continue. We may
not be able to pass these higher costs on to customers because of competitive
forces, which would adversely affect our cash flow and operating margins.

     Depreciation and amortization increased 37.6% from $14.4 million for the
three months ended June 30, 2000, to $19.8 million for the three months ended
June 30, 2001. The increase in depreciation and amortization is due to
significant additions in property, plant and equipment resulting from the
expansion of our networks; the upgrading of older systems to broadband
capabilities; and the purchase of buildings, computers and office equipment. We
expect our depreciation and amortization expense to continue to increase as we
make capital expenditures to extend our existing networks and build additional
networks.

     Other Income and Expense. Interest income was $1.7 million for the three
months ended June 30, 2000, compared to $0.8 million for the same period in
2001. The interest income earned is the result of the short term investment of
the proceeds from our equity transactions.

     Interest expense increased from $9.9 million for the three months ended
June 30, 2000, to $10.9 million for the three months ended June 30, 2001. The
increase in interest expense is due to the accretion of the book value of the 11
7/8% senior discount notes issued by Knology Broadband in October 1997. We
capitalized interest related to the construction of our broadband networks of
$0.5 million and $0.8 million for the three months ended June 30, 2000 and 2001,
respectively.

                                       11
<PAGE>

     Net Loss. We incurred a net loss of $24.1 million for the three months
ended June 30, 2000, compared to a net loss of $30.8 million for the three
months ended June 30, 2001. We expect net losses to continue to increase as we
continue to expand our business.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000

The following table sets forth financial data as a percentage of operating
revenues for the six months ended June 30, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                                                                     JUNE 30,
                                                                                2001          2000
                                                                                ----          ----
                             <S>                                                <C>           <C>
                             Operating revenues:
                                 Video...................................          47%          53%
                                 Voice...................................          42           41
                                 Data and other..........................          11            6
                                                                                 ----         ----
                                    Total................................         100          100
                             Operating expenses:
                                 Cost and expenses, excluding
                                    depreciation and amortization........         105          107
                                 Depreciation and amortization...........          79           71
                                                                                 ----         ----
                                    Total................................         184          178
                                                                                 ----         ----
                             Operating loss..............................         (84)         (78)
                             Other income and expenses, net..............         (41)         (42)
                                                                                 ----         ----
                             Loss before income tax benefit..............        (125)        (120)
                             Income tax benefit..........................           0            4
                                                                                 ----         ----
                                    Net loss ............................        (125)%       (116)%
                                                                                 ====         ====
</TABLE>

     The following table sets forth certain financial data for the periods ended
June 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                             SIX MONTHS ENDED
                                                                 JUNE 30,
                                                           2001             2000             CHANGE             %
                                                      ------------     ------------          ------           ---
            <S>                                       <C>              <C>               <C>               <C>
            OPERATING REVENUES:
               Video..............................     $     23,152     $     20,615     $      2,537          12.3%
               Voice..............................           20,619           15,985            4,634          29.0%
               Data and other.....................            5,187            2,394            2,793         116.7%
                                                       ------------     ------------     ------------         -----
                     Total........................           48,958           38,994            9,964          25.6%
            OPERATING EXPENSES:
               Costs and expenses, excluding
            depreciation and amortization.........           51,402           41,582            9,820          23.6%
               Depreciation and amortization......           38,424           27,859           10,565          37.9%
                                                       ------------     ------------     ------------         -----
                     Total........................           89,826           69,441           20,385          29.4%
                                                       ------------     ------------     ------------         -----
            OPERATING LOSS........................          (40,868)         (30,447)         (10,421)         34.2%
            OTHER INCOME AND EXPENSES, NET........          (19,924)         (16,215)          (3,709)         22.9%
            LOSS BEFORE INCOME TAX BENEFIT........          (60,792)         (46,662)         (14,130)         30.3%
            INCOME TAX BENEFIT....................                0            1,557           (1,557)        100.0%
                                                       ------------     ------------     ------------         -----
            NET LOSS..............................     $    (60,792)    $    (45,105)    $    (15,687)         34.8%
                                                       ============     ============     ============         =====
</TABLE>

     Revenues. Operating revenues increased 25.6% from $39.0 million for the six
months ended June 30, 2000, to $49.0 million for the six months ended June 30,
2001. Operating revenues from video services increased 12.3% from $20.6 million
for the six months ended June 30, 2000 to $23.2 million for the same period in
2001. Operating revenues from voice services increased 29.0% from $16.0 million
for the six months ended June 30, 2000 to $20.6 million for the same period in
2001. Operating revenue from data and other services increased 116.7% from $2.4
million for the six months ended June 30, 2000 to $5.2 million for the same
period in 2001, $4.7 million of which were revenues from data services.

     The increased revenues for video, voice and data and other services are
primarily due to an increase in the number of connections, from 160,266 at June
30, 2000 to 207,493 at June 30, 2001. The additional connections resulted
primarily from:

 .    the extension of our broadband networks in the Augusta and Charleston
     markets;

 .    the upgrade of our existing one-way network to an advanced interactive
     broadband network in Huntsville;

 .    internal growth in connections generated by our sales and marketing
     efforts; and

                                       12
<PAGE>

 .      the construction of a new broadband network in Knoxville.

       Expenses. Operating expenses, excluding depreciation and amortization,
increased 23.6% from $41.6 million for the six months ended June 30, 2000, to
$51.4 million for the six months ended June 30, 2001. The increase in our cost
of services and operating expenses is consistent with the growth in revenues and
is a result of the expansion of the operations, the increase in the number of
employees associated with such expansion and growth into new markets. We expect
our cost of services to continue to increase as we add more connections.
Selling, operations and administrative expenses will increase operating expenses
as we expand into additional markets. Programming costs, which are our largest
single expense item, have been increasing over the last several years on an
aggregate basis due to an increase in subscribers and on a per subscriber basis
due to increase in costs per program channel. We expect this trend to continue.
We may not be able to pass these higher costs on to customers because of
competitive forces, which would adversely affect our cash flow and operating
margins.

       Depreciation and amortization increased from $27.9 million for the six
months ended June 30, 2000, to $38.5 million for the six months ended June 30,
2001. The increase in depreciation and amortization is due to significant
additions in property, plant, equipment and intangible assets resulting from the
expansion of our networks; the upgrading of older systems to broadband
capabilities; and the purchase of buildings, computers and office equipment. We
expect our depreciation and amortization expense to continue to increase as we
make capital expenditures to extend our existing networks and build additional
networks.

       Other Income and Expense. Interest income was $3.1 million for the six
months ended June 30, 2000, compared to $1.9 million for the same period in
2001.

       Interest expense increased from $19.4 million for the six months ended
June 30, 2000, to $21.3 million for the six months ended June 30, 2001. The
increase in interest expense reflects the accrual of the interest attributable
to the 11 7/8% senior discount notes issued in October 1997. We capitalized
interest related to the construction of our broadband networks of $1.1 million
and $1.4 million for the six months ended June 30, 2000 and 2001 respectively.

      Income Tax Benefit. The income tax benefit was $1.6 million for the six
months ended June 30, 2000, compared to no benefit for the same period in 2001.
The income tax benefit in 2000 resulted from our utilizing net tax losses under
a tax sharing agreement with ITC Holding. The tax sharing agreement became
effective August 1998 upon the acquisition by ITC Holding of its majority
interest in Knology Broadband. Following the spin-off of Knology, Inc. by ITC
Holding, effective February 7, 2000, we no longer participate in the tax sharing
agreement. Therefore, we no longer receive payments from ITC Holding related to
income tax benefits. As a stand-alone entity after the spin-off, we now record a
full valuation allowance against any income tax benefit until management
determines that it will be more likely than not that a tax benefit will be
realized, at which time a tax benefit will be recorded.

       Net Loss. We incurred a net loss of $45.1 million for the six months
ended June 30, 2000, compared to a net loss of $60.8 million for the six months
ended June 30, 2001. We expect net losses to continue to increase as we continue
to expand our business.



LIQUIDITY AND CAPITAL RESOURCES

      As of December 31, 2000, we had a net working capital deficit of $12.9
million, compared to net working capital of $48.2 million at June 30, 2001. The
increase in working capital is principally due to the completion of the private
placement of our Series C preferred stock.

      Operating activities provided cash of $10.5 million and used cash of $17.0
million for the six months ended June 30, 2000 and 2001, respectively. The net
cash flow activity related to operations consists primarily of changes in
operating assets and liabilities and adjustments to net loss for non-cash
depreciation and amortization.

      Investing activities used cash of $56.2 million and $48.6 million for the
six months ended June 30, 2000 and 2001, respectively. Investing activities in
the 2001 period primarily consisted of $47.0 million of capital expenditures,
$0.8 million of franchise cost expenditures, and a $0.5 million investment in
Clearsource.

      Financing activities provided cash of $131.0 million and $110.1 million
for the six months ended June 30, 2000 and 2001, respectively. Financing
activities in the six months ended June 30, 2001 consisted of $110.1 million in
proceeds, net of expenses, from the private placement of Series C preferred
stock.

                                       13
<PAGE>

FUNDING TO DATE

      We have raised equity capital and borrowed money to finance a significant
portion of our operating, investing and financing activities in the development
of our business. In October 1997, Knology Broadband received net proceeds of
approximately $242.4 million from the offering of units consisting of senior
discount notes due 2007 and warrants to purchase preferred stock. The notes were
sold at a substantial discount from their principal amount at maturity, and
there will not be any payment of cash interest on the notes prior to April 15,
2003. The notes will fully accrete to face value of $444.1 million on October
15, 2002. From and after October 15, 2002, the notes will bear interest, which
will be payable in cash, at a rate of 11 7/8% per annum on April 15 and October
15 of each year, commencing April 15, 2003. The indenture contains a number of
covenants that restrict the ability of Knology Broadband and its subsidiaries to
take certain actions, including the ability to:

          -       incur indebtedness;

          -       pay dividends;

          -       prepay subordinated indebtedness;

          -       redeem capital stock;

          -       make investments;

          -       engage in transactions with stockholders and affiliates;

          -       create liens;

          -       sell assets; and

          -       engage in mergers and consolidations.

      If Knology Broadband fails to comply with these covenants, Knology
Broadband's obligation to repay the notes may be accelerated. However, these
limitations are subject to a number of important qualifications and exceptions.
In particular, while the indenture restricts Knology Broadband's ability to
incur additional indebtedness by requiring compliance with specified leverage
ratios, it permits Knology Broadband and its subsidiaries to incur an unlimited
amount of indebtedness to finance the acquisition of equipment, inventory and
network assets and to secure such indebtedness, and to incur up to $50 million
of additional secured indebtedness. Upon a change of control of Knology
Broadband, as defined in the indenture, Knology Broadband would be required to
make an offer to purchase the notes at a purchase price equal to 101% of their
accreted value, plus accrued interest.

      In November 1999, we completed an exchange in which we received the
Knology Broadband warrants, issued in connection with the senior discount notes
in 1997, in exchange for warrants to purchase shares of our Series A preferred
stock.

      On December 22, 1998, Knology Broadband entered into a $50 million four-
year senior secured credit facility with First Union National Bank and First
Union Securities, Inc. This credit facility allows Knology Broadband to borrow
up to five times the annualized consolidated adjusted cash flow of each of its
subsidiaries, if such subsidiary's cash flow is positive. The credit facility
may be used for working capital and other purposes, including capital
expenditures and permitted acquisitions. At Knology Broadband's option, interest
will accrue based on either the prime or federal funds rate plus applicable
margin or the LIBOR rate plus applicable margin. The applicable margin may vary
from .50% to 2.50% based on the leverage ratio of Knology Broadband. The credit
facility contains a number of covenants that restrict the ability of Knology
Broadband and its subsidiaries to take certain actions, including the ability
to:

          -       incur indebtedness;

          -       create liens;

          -       pay dividends;

          -       make distributions or stock repurchases;

          -       make investments;

          -       engage in transactions with affiliates;

                                       14
<PAGE>

          -       sell assets; and

          -       engage in mergers and acquisitions.


        The credit facility also includes covenants requiring compliance with
certain operating and financial ratios on a consolidated basis, including the
number of customer connections and average revenue per subscriber. Knology
Broadband is currently in compliance with these covenants, but there can be no
assurances that Knology Broadband will remain in compliance. Should Knology
Broadband not be in compliance with the covenants, Knology Broadband would be in
default and would require a waiver from the lender. In the event the lender
would not provide a waiver, amounts outstanding under the facility could be
payable to the lender on demand. A change of control of Knology Broadband, as
defined in the credit facility agreement, would constitute a default under the
covenants.

        The maximum amount available under the credit facility as of June 30,
2001 was approximately $24.7 million, assuming compliance with all of the
operating and financial covenants. As of June 30, 2001, $15.5 million had been
drawn against the credit facility.

        We obtained an aggregate of approximately $39.4 million in loans from
ITC Holding and its subsidiary InterCall during November 1999 and January 2000.
Approximately $9.6 million of these advances were provided to us in November
1999. This loan was converted into 2,029,724 shares of Series A preferred stock
in November 1999. Another $29.7 million loan was made in January 2000. The loan
bore interest at an annual rate of 11 7/8% and had a maturity date of March 31,
2000. In February 2000, the loan was converted into options to purchase up to
6,258,036 shares of our Series A preferred stock, and we issued to ITC Holding a
note under which we will pay ITC Holding any proceeds from option exercises
received by us, including an amount equal to the exercise price for cashless
exercises. The options were distributed to ITC Holding's option holders on
February 4, 2000.

        In connection with our spin-off from ITC Holding in February 2000, we
entered into an agreement with ITC Holding in which we made certain covenants
that restricted our ability to issue additional shares of capital stock under
certain circumstances. In connection with our private placement of 31,166,667
shares of our Series C preferred stock on January 12, 2001, ITC Holding agreed
to release us from these covenants pursuant to the agreement. Accordingly, we
are no longer restrained by the ITC Holding agreement with respect to the
issuance of additional shares of capital stock.

        In February 2000, we issued to qualified investors in an equity private
placement 21,180,131 shares of our Series B preferred stock at a purchase price
of $4.75 per share, for aggregate proceeds of approximately $100.6 million.

        On January 12, 2001, the Company issued to certain existing investors
and a select group of new accredited investors, in a private placement,
31,166,667 shares of Series C preferred stock at a purchase price of $3.00 per
share, for aggregate proceeds of $93.5 million. In connection with the
completion of this private placement, we amended our amended and restated
certificate of incorporation to adjust the ratios at which our Series A
preferred stock and Series B preferred stock convert into common stock. Prior to
the completion of the private placement of Series C preferred stock, both the
shares of Series A preferred stock and shares of Series B preferred stock
converted into shares of common stock on a one-to-one basis. As amended, the
conversion ratio for each share of Series A preferred stock was adjusted to
one-to-1.0371 and the conversion ratio for each share of Series B preferred
stock was adjusted to one-to-1.4865, subject to customary anti-dilution
adjustments. With respect to the amendment of the conversion prices of the
Series A preferred stock and Series B preferred stock, we recognized a non-cash
dividend in the approximate amount of $36.6 million in the first quarter of
2001.

        On March 30, 2001 the Company issued to a small group of accredited
investors, in a private placement, 1,885,996 shares of Series C preferred stock,
at a purchase price of $3.00 per share, for aggregate proceeds of approximately
$5.7 million. The shares of Series C preferred stock are convertible into shares
of our common stock at any time at the option of the holder and automatically
upon the completion of a Qualified Public Offering. The shares of Series C
preferred stock are convertible into shares of common stock on a one-to-one
basis.

        On April 13, 2001 the Company issued to a small group of accredited
investors, in a private placement, 2,621,930 shares of its Series C preferred
stock, at a purchase price of $3.00 per share, for aggregate proceeds of
approximately $7.9 million.

        On June 29, 2001 the Company issued to a small group of accredited
investors and exiting investors, in a private placement, 1,544,970 shares of its
Series C preferred stock, at a purchase price of $3.00 per share, for aggregate
proceeds of approximately $4.6 million.

                                       15
<PAGE>

        Our use of the net proceeds from the offerings of our Series C preferred
stock to date and from future offerings of debt and equity securities and future
borrowings is limited by the provisions of the stock purchase agreement that we
entered into in connection with the January 12, 2001 offering. Specifically, the
first $90 million in net proceeds are restricted to construction and operation
of our networks in the Augusta, Charleston, Columbus, Huntsville, Montgomery and
Panama City markets.

        The next $10 million in net proceeds can be used to construct and
operate Knology's networks in the first six markets as well as in the Knoxville
and Nashville markets. The next $35 million in net proceeds that we raise in
future offerings of debt or equity securities and future borrowings must be used
to construct and expand our networks in the first six markets. The next $15
million of net proceeds must be used to construct and expand Knology's networks
in the first six markets as well as in the Knoxville market. Any additional net
proceeds can be used for any corporate purpose.

The table below summarizes these uses:

<TABLE>
<CAPTION>
Use of Net Proceeds from
Series C Preferred Stock
Offerings and Future Offerings               Use of Proceeds
------------------------------               ---------------
<S>                                          <C>
$0-$90 million                               Augusta, Charleston, Columbus, Huntsville, Montgomery
                                             and Panama City markets
$90-$100 million                             Augusta, Charleston, Columbus, Huntsville,
                                             Montgomery, Panama City, Knoxville and
                                             Nashville markets
$100-$135 million                            Augusta, Charleston, Columbus, Huntsville,
                                             Montgomery and Panama City markets
$135-$150 million                            Augusta, Charleston, Columbus, Huntsville,
                                             Montgomery, Panama City and Knoxville
                                             markets
Over $150 million                            Any corporate purpose
</TABLE>

       These restrictions on our use of proceeds from the Series C preferred
stock offerings and future offerings may be waived if approved by a majority of
our board of directors, including at least one director appointed by the holders
of our Series B preferred stock (if there are any then serving on our board).

       On June 29, 2001, Knology, Inc., through its wholly owned subsidiaries,
Globe Telecommunications, Inc., Interstate Telephone Company and Valley
Telephone Co., Inc. (the "Borrowers"), entered into a $40 million secured master
loan agreement with CoBANK, ACB. This master loan agreement allows the Borrowers
to make one or more advances in an amount not to exceed $40 million. The loan
proceeds may be used to make equity contributions to Knology of Knoxville, Inc.
and to finance capital expenditures, working capital and for general corporate
purposes of the Borrowers. Interest is payable quarterly and will accrue, at the
Company's option, based on either a variable rate established by CoBANK, a fixed
quoted rate established by CoBANK or a LIBOR rate plus applicable margin. The
applicable margin may vary from 1.50% to 3.00% based on the leverage ratio of
the Borrowers. The master loan agreement contains a number of covenants that
restrict the ability of the Borrowers to take certain actions, including the
ability to:

          -       incur indebtedness;

          -       create liens;

          -       merge or consolidate with any other entity;

          -       make distributions or stock repurchases;

          -       make investments;

          -       engage in transactions with affiliates; and

          -       sell or transfer assets.


        The master loan agreement also includes covenants requiring compliance
with certain operating and financial ratios of the Borrowers on a consolidated
basis, including a total leverage ratio and a debt service coverage ratio. The
Borrowers are currently in compliance with these covenants, but there can be no
assurances that the Borrowers will remain in compliance. Should the

                                       16
<PAGE>

Borrowers not be in compliance with the covenants, the Borrowers would be in
default and would require a waiver from CoBANK. In the event CoBANK would not
provide a waiver, amounts outstanding under the master loan agreement could be
payable on demand.

         As of June 30, 2001, no loans have been made under the master loan
agreement.


FUTURE FUNDING

        Our business requires substantial investment to finance capital
expenditures and related expenses, to expand and upgrade our interactive
broadband networks, to fund subscriber equipment, to maintain the quality of our
networks and to finance the repayment, extinguishment or repurchase of our debt.
We presently expect that our current cash reserves, cash flow from operations,
and funding obtained through our existing credit facility will be sufficient to
fund our planned 2001 capital expenditures. In 2001, we expect to use
approximately $2.0 million to fund operating losses and approximately $85.0
million for capital expenditures, of which approximately $32.2 million relates
to the construction of networks in the markets where we currently provide
service and the remainder primarily relates to the purchase of equipment for
customer premises, such as cable boxes, and information systems.

        We have completed the construction of our networks in Montgomery,
Alabama; Columbus, Georgia and Panama City, Florida. We expect to complete the
upgrade of the Huntsville network to broadband capacity by the end of 2001. We
expect that, with sufficient funds, the construction of our networks in our
other existing markets will be substantially completed during 2005. We will not
have sufficient funds to complete this construction without significant
additional financing. We expect to raise this capital through bank borrowings,
private and public debt offerings and private and public equity offerings,
although there is no assurance that this financing will be available on terms
favorable to us.

        If we are not successful in raising additional capital, we may not be
able to complete the construction of our networks throughout these markets. This
may cause us to violate our franchise agreements, which could adversely affect
us, or may limit our growth within these markets. If we raise additional
financing, we plan to increase the amount we spend for capital expenditures in
2001.

        We have recently received franchises to build networks in Nashville,
Tennessee and Louisville, Kentucky, although our franchise in Louisville is
currently being contested by the incumbent cable provider. We have begun
planning the construction of our network in Nashville. We also plan to expand to
additional cities in the southeastern United States. We estimate the cost of
constructing networks and funding initial subscriber equipment in these new
cities as well as others at approximately $750 to $1,000 per home. The actual
costs of each new market may vary significantly from this range and will depend
on the number of miles of network to be constructed, the geographic and
demographic characteristics of the city, costs associated with the cable
franchise in each city, the number of subscribers in each city, the mix of
services purchased, the cost of subscriber equipment we pay for or finance and
other factors. We will need additional financing to complete this expansion, for
new business activities or in the event we decide to make acquisitions. The
schedule for our planned expansion will depend upon the availability of
sufficient capital. Definitive decisions on which cities will be chosen for
expansion are not expected to be made until this capital has been raised. If we
are not successful in raising additional capital, we will not be able to expand
as planned.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

        We have no derivative financial instruments outstanding to hedge
interest rate risk. Our only borrowings subject to market conditions are our
borrowings under our credit facility which are based on either a prime or
federal funds rate plus applicable margin or LIBOR plus applicable margin. Any
changes in these rates would affect the rate at which we could borrow funds
under our bank credit facility. A hypothetical 10% increase in interest rates on
our variable rate bank debt for duration of one year would increase interest
expense by an immaterial amount.

                          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

                                       17
<PAGE>

also a party to regulatory proceedings affecting the relevant segments of the
communications industry generally.

ITEM 2. Changes in Securities and Use of Proceeds

     On April 13, 2001 the Company issued to a small group of accredited
investors, in a private placement, 2,621,930 shares of its Series C preferred
stock, at a purchase price of $3.00 per share, for aggregate proceeds of
approximately $7.9 million. On June 29, 2001 the Company issued to a small group
of accredited investors and existing investors, in a private placement,
1,544,970 shares of its Series C preferred stock, at a purchase price of $3.00
per share, for aggregate proceeds of approximately $4.6 million. The shares of
Series C preferred stock are convertible into shares of our common stock at any
time at the option of the holder and automatically upon the completion of a
Qualified Public Offering. The shares of Series C preferred stock are
convertible into shares of common stock on a one-to-one basis.

     The issuance of securities described above was made in reliance on
exemptions from registration provided by Section 4(2) or Regulation D of the
Securities Act, as amended, as transactions by an issuer not involving any
public offering. The persons and entities exchanging securities in the
transactions represented their intention to acquire the securities for
investment only and not with a view to or for distribution in connection with
such transactions, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Company, through their relationship with the Company or
through information about the Company made available to them.

ITEM 3. Default upon Senior Securities

None

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

     In order to issue additional authorized shares of Series C preferred stock,
we obtained the approval of our stockholders, by written consent, to amend our
amended and restated certificate of incorporation. The amendment extended until
June 30, 2001 the deadline by which the Company could issue additional shares of
Series C preferred stock without separately obtaining the approval of a majority
of the holders of Series A preferred stock and a majority of the holders of
Series B preferred stock or without triggering certain anti-dilution rights of
the holders of Series A preferred stock, Series B preferred stock or Series C
preferred stock.

     The amendment was approved by the holders of 31,069,603 shares out of
50,969,633 shares of our Series A preferred stock outstanding on the record
date, 19,578,946 shares out of 21,180,131 shares of our Series B preferred stock
outstanding on the record date, 24,666,667 shares out of 35,674,593 shares of
our Series C preferred stock outstanding on the record date and 85,993,056
shares out of 120,469,428 shares of our common stock, on an as-converted basis,
outstanding on the record date. The amendment, which was effective on June 19,
2001, is Exhibit 3.1.1 to this Quarterly Report on form 10-Q and is incorporated
herein by reference.

ITEM 5. Other Information

None

ITEM 6. Exhibits and Reports on Form 8-K

                                       18
<PAGE>

(A)  EXHIBITS

<TABLE>
<CAPTION>
Exhibit
    No.                                                  Exhibit Description
<S>           <C>
3.1           Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to
              Exhibit 3.1 to Knology Inc.'s Current Report on Form 8-K filed on January 26, 2001).

3.1.1         Amendment to Amended and Restated Certificate of Incorporation of Knology, Inc.

3.2           Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc. Registration
              Statement on Form S-1 (File No. 333-89179)).

4.1           Specimen of Stock Certificate for Shares of Common Stock, par value $0.01 (Incorporated herein by
              reference to Exhibit 4.1 to Knology Inc.'s Registration Statement on Form S-1 (File No. 333-89179)).

4.2           Specimen of Stock Certificate for Shares of Series A Preferred Stock, par value $0.01 (Incorporated
              herein by reference to Exhibit 4.2 to Knology Inc.'s Registration Statement on Form S-1 (File No. 333-89179)).

4.3           Indenture dated as of October 22, 1997 between Knology Holdings, Inc. and United States Trust Company of
              New York, as Trustee, relating to the 11 78% Senior Discount Notes Due 2007 of Knology Holdings, Inc.
              (Incorporated herein by reference to Exhibit 4.1 to the Registration Statement of Knology Broadband, Inc.
              (formerly Knology Holdings, Inc.) on Form S-4 (File No. 333-43339)).

4.4           Form of Senior Discount Note (contained in Exhibit 4.3).

4.5           Form of Exchange Note (contained in Exhibit 4.3).

10.1          Master Loan Agreement, dated as of June 29, 2001, by and between CoBank, ACB and Globe Telecommunications,
              Inc., Interstate Telephone Company and Valley Telephone Co., Inc.

10.1.1        First Supplement to the Master Loan Agreement, dated as of June 29, 2001, by and between CoBank, ACB and Globe
              Telecommunications, Inc., Interstate Telephone Company and Valley Telephone Co., Inc.

10.1.2        Promissory Note, dated June 29, 2001, made by Globe Telecommunications, Inc., Interstate Telephone Company
              and Valley Telephone Co., Inc. in favor of CoBank, ACB

10.1.3        Stock Pledge Agreement, dated as of June 29, 2001, by and between Globe Telecommunications, Inc. and CoBank, ACB

10.1.4        Security Agreement, dated as of June 29, 2001, made by Globe Telecommunications, Inc., Interstate Telephone
              Company and Valley Telephone Co., Inc. in favor of CoBank, ACB

10.1.5        Security Agreement, dated as of June 29, 2001, made by ITC Globe, Inc. in favor of CoBank, ACB

10.1.6        Continuing Guaranty, dated as of June 29, 2001 by ITC Globe, Inc. for the benefit of CoBank, ACB

10.1.7        Stock Pledge Agreement, dated as of June 29, 2001, by and between Knology, Inc. and CoBank, ACB
</TABLE>

                                       19
<PAGE>

      (B) REPORTS ON FORM 8-K

     On April 2, 2001, the Company filed on Form 8-K, a report reflecting the
consent of Arthur Andersen, LLP to the incorporation, by reference in the
Company's Registration Statement on Form S-8, of their report dated February 13,
2001 for the year ended December 31, 2000, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.

                                       20
<PAGE>

                                  SIGNATURES

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

                                             KNOLOGY, Inc.

August 2, 2001                           By: /s/ RODGER L. JOHNSON
                                             -----------------------------------
                                             President and Chief Executive
                                             Officer

                                             KNOLOGY, Inc.

August 2, 2001                           By: /s/ ROBERT K. MILLS
                                             -----------------------------------
                                             Chief Financial Officer
                                             (Principal Financial Officer)

                                       21