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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

COMMISSION FILE NUMBER: 000-32647

KNOLOGY, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|DELAWARE                                                      |  | 58-2424258                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock

Options to Purchase
Shares of Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.    Yes ̈No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes ̈No  þ

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  þ    No ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

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 ̈Non-Accelerated Filer  þ

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

The aggregate market value of the outstanding common equity held by non-affiliates of the registrant at June 30, 2005, was approximately $33.4
million, computed based on the closing sale price as quoted on the Nasdaq National Market on that date.

As of January 31, 2006, we had
24,255,225 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Parts of the registrants proxy statement on Schedule 14A for its 2006 Annual Meeting of Stockholders, to be held May 2, 2006, are
incorporated by reference into Part III of this Form 10-K.



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TABLE OF CONTENTS



|                                             |  |                                                                                                              |  |     
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                                             |  |                                                                                                              |  | PAGE
|PART I                                       |  |                                                                                                              |  |     
|                                             |  |                                                                                                             
|ITEM 1.                                      |  | BUSINESS                                                                                                     |  | 1   
|ITEM 1A.                                     |  | RISK FACTORS                                                                                                 |  | 29  
|ITEM 1B.                                     |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 36  
|ITEM 2.                                      |  | PROPERTIES                                                                                                   |  | 36  
|ITEM 3.                                      |  | LEGAL PROCEEDINGS                                                                                            |  | 36  
|ITEM 4.                                      |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 37  
|                                             |  |                                                                                                             
|PART II                                      |  |                                                                                                              |  |     
|                                             |  |                                                                                                             
|ITEM 5.                                      |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 38  
|ITEM 6.                                      |  | SELECTED FINANCIAL DATA                                                                                      |  | 39  
|ITEM 7.                                      |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 40  
|ITEM 7A.                                     |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 56  
|ITEM 8.                                      |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 57  
|ITEM 9.                                      |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 57  
|ITEM 9A.                                     |  | CONTROLS AND PROCEDURES                                                                                      |  | 57  
|ITEM 9B.                                     |  | OTHER INFORMATION                                                                                            |  | 57  
|                                             |  |                                                                                                             
|PART III                                     |  |                                                                                                              |  |     
|                                             |  |                                                                                                             
|ITEM 10.                                     |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                           |  | 58  
|ITEM 11.                                     |  | EXECUTIVE COMPENSATION                                                                                       |  | 58  
|ITEM 12.                                     |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 58  
|ITEM 13.                                     |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                               |  | 58  
|ITEM 14.                                     |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 58  
|                                             |  |                                                                                                             
|PART IV                                      |  |                                                                                                              |  |     
|                                             |  |                                                                                                             
|ITEM 15.                                     |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 59  
|                                             | 
|SIGNATURES                                   |  | 66                                                                                                          
|                                             | 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   |  | F-1                                                                                                         
|EX-21.1 SUBSIDIARIES OF KNOLOGY, INC.        |  |                                                                                                             
|EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP     |  |                                                                                                             
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO |  |                                                                                                             
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO |  |                                                                                                             
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO |  |                                                                                                             
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |  |                                                                                                             



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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K for the year ended December 31, 2005 contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 including, specifically, the information under the captions Business and Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as other
places in this annual report. Statements in this annual report that are not historical facts are forward-looking statements. Such forward-looking statements include those relating to:



| |  |  | our anticipated capital expenditures;
| | - |  | -------------------------------------



| |  |  | our anticipated sources of capital and other funding;
| | - |  | -----------------------------------------------------



| |  |  | plans to develop future networks and upgrade facilities;
| | - |  | --------------------------------------------------------



| |  |  | the market opportunity presented by markets we have targeted;
| | - |  | -------------------------------------------------------------



| |  |  | the current and future markets for our services and products;
| | - |  | -------------------------------------------------------------



| |  |  | the effects of regulatory changes on our business;
| | - |  | --------------------------------------------------



| |  |  | competitive and technological developments;
| | - |  | -------------------------------------------



| |  |  | possible acquisitions, alliances or dispositions; and
| | - |  | -----------------------------------------------------



| |  |  | projected revenues, liquidity, interest costs and income.
| | - |  | ---------------------------------------------------------

The words estimate, project, intend, expect, believe, may, could, plan and similar expressions are intended to identify forward-looking
statements. Wherever they occur in this annual report or in other statements attributable to us, forward-looking statements are necessarily estimates reflecting our best judgment. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. The most significant of these risks, uncertainties and other factors are discussed above. We caution you to carefully consider these risks and not to place undue reliance on our
forward-looking statements. Except as required by law, we assume no responsibility for updating any forward-looking statements.



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PART I

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



|ITEM 1. | BUSINESS
|------- | --------

We are a fully integrated provider of
video, voice, data and advanced communications services to residential and business customers in nine markets in the southeastern United States. For the year ended December 31, 2005, our revenues were $230.9 million and we had a net loss
attributable to common stockholders of $55.4 million. Video, voice and data revenues accounted for approximately 44%, 34% and 22%, respectively, of our consolidated revenues for the year ended December 31, 2005. We report an aggregate
number of connections for video, voice and data services. For example, a single customer who purchases cable television, local telephone and Internet access services would count as three connections. As of December 31, 2005, we had
approximately 433,000 total connections.

We provide our services over our wholly owned, fully upgraded 750 MHz interactive broadband
network. As of December 31, 2005, our network passed approximately 750,000 marketable homes, which are residential and business units passed by our broadband network that are listed in our database and which we do not believe are covered by
exclusive arrangements with other providers of competing services. Our network is designed with sufficient capacity to meet the growing demand for high-speed and high-bandwidth video, voice and data services, as well as the introduction of new
communications services.

We have operating experience in marketing, selling, provisioning, servicing and operating video, voice and data
systems and services. We have delivered a bundled service offering for seven years, and we are supported by a management team with decades of experience operating video, voice and data networks. We provide a full suite of video, voice and data
services in Huntsville and Montgomery, Alabama; Panama City, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; Knoxville, Tennessee and portions of Pinellas County, Florida. We began offering our bundled service package
in Pinellas County, Florida during 2004 on a limited basis. We plan to complete the enhancement of our network assets in Pinellas County making the bundle offering available to all of our marketable passings.

We have built our Company through:



| |  |  | acquisitions of other cable companies, networks and franchises;
| | - |  | ---------------------------------------------------------------



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



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



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

We were formed as a Delaware corporation in September 1998, and our common stock began trading publicly on the Nasdaq
National Market in December 2003.

Website Access to SEC Filings.

The Company makes its SEC filings, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on the
Companys Internet website, www.knology.com, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC.



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Our Industry

In recent years, regulatory developments and advances in technology have substantially altered the competitive dynamics of the communications industry and blurred the lines among traditional video, voice and data providers. The
Telecommunications Act of 1996 and its implementation through FCC regulation have encouraged competition in these markets. Advances in technology have made the transmission of video, voice and data on a single platform feasible and economical.
Communications providers seek to bundle products to leverage their significant capital investments, protect market share in their core service offerings from new sources of competition, and achieve operating efficiencies by providing more than one
service over their networks at lower incremental costs while increasing revenue from the existing customer base.

Incumbent cable operators
are working to expand their core services to begin offering a bundled package of services. Many of the cable operators bundling strategies include the provision of Internet based voice services for their customers. Most of the major providers
have announced plans to roll out Voice over Internet Protocol (VoIP) services in the next few years. Some operators have circuit-switched networks in some of their markets that are capable of offering voice services. According to the National Cable
Television Association (NCTA), as of December 31, 2005, there were approximately 3.5 million cable voice customers in the United States. However, most cable providers will need to incur additional capital costs to upgrade their existing
networks for voice capability. In addition, they will need to devote and develop significant management resources for the deployment of voice services on a large scale.

We believe the future of the industry will include a broader competitive landscape in which communications providers will offer bundled video, voice and data services and compete with each other based on scope and
depth of the service offering, pricing and convenience. While many competitors have begun to offer bundled services in response to these industry factors, few have been able to offer a full suite of services on a large scale.

Our Strategy

Our goal is to
be the leading provider of integrated broadband communications services to residential and business customers in our target markets and to fully leverage the capacity and capability of our interactive broadband network. The key components of our
strategy include:



| |  |  | Focus on offering fully integrated bundles of video, voice and data services. We provide video, voice and data services over our broadband network and promote the
adoption of these services by new and existing customers in bundled offerings. Bundling is central to our operating strategy and provides us with meaningful revenue opportunities, enables us to increase penetration and operating efficiencies,
facilitates customer service, and reduces customer acquisition and installation costs. We believe that offering our customers a bundle of video, voice and data services allows us to maximize the revenue generating capability of our network, increase
revenue per customer, provide greater pricing flexibility and promote customer retention.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leverage our broadband network to provide new services. We built our high-capacity, interactive broadband network with fiber optics as close to the customer as
economically feasible. All of our network is a minimum of 750MHz, which enables us to provide at least 750 MHz of capacity and two-way capability to all of our homes passed in these markets. We have invested in advanced technology platforms that
support advanced communications services and multiple emerging interactive services such as video-on-demand, subscriber video-on-demand, digital video recorder, interactive television, high-definition television, Internet Protocol Centrex services
and passive optical network services in our markets. We continue enhancing our network assets in Pinellas County, Florida to provide voice services, which we began offering in late 2004.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deliver industry-leading customer service. Outstanding customer service is a critical element of our operating philosophy. Through our call center,
which we operate 24 hours a day, seven days a week, we deliver personalized and responsive customer care that promotes customer loyalty. Through our network
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | operations center, we monitor and evaluate network performance and quality of service. Our philosophy is to be proactive in retaining customers rather than
reactive, and we strive to resolve service delivery problems prior to the customer becoming aware of them. As we own our network and actively monitor our digital services from a centralized location to the customer premises, we have greater control
over the quality of the services we deliver to our customers and, as a result, the overall customer experience. We have an enterprise management system that enhances our service capability by providing us with a single platform for sales,
provisioning, customer care, trouble ticketing, credit control, scheduling and dispatch of service calls, as well as providing our customers with a single bill for all services.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pursue expansion opportunities. We have a history of acquiring, integrating, upgrading and expanding systems, enabling us to offer bundled video, voice and data
services and increasing our revenue opportunity, penetration and operating efficiency. To augment our organic growth, we will pursue value-enhancing expansion opportunities meeting our previously described target market criteria that allow us to
leverage our experience as a bundled broadband provider and endorse our operating philosophy of delivering profitable growth. These opportunities include acquisitions and edge-out expansion in new or existing markets. We will continue to evaluate
growth opportunities based on targeted return requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Interactive Broadband Network

Our network is critical to the implementation of our operating strategy, allowing us to offer bundled video, voice and data services to our customers in
an efficient manner and with a high level of service. In addition to providing high capacity and scalability, our network has been specifically engineered to have increased reliability, including features such as:



| |  |  | redundant fiber routing and use of SONET protocol which enables the rapid, automatic redirection of network traffic in the event of a fiber cut;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | back-up power supplies in our network which ensure continuity of our service in the event of a power outage; and
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | network monitoring to the customer premises for all digital video, voice and data services.
| | - |  | -------------------------------------------------------------------------------------------

Technical overview

Our
interactive broadband network consists of fiber-optic cable, coaxial cable and copper wire. Fiber-optic cable is a communications medium that uses hair-thin glass fibers to transmit signals over long distances with minimum signal loss or distortion.
In most of our network, our systems main high capacity fiber-optic cables connect to multiple nodes throughout a network. These nodes are connected to individual homes and buildings by coaxial cable and are shared by a number of customers,
generally 500 homes. We have sufficient fibers in our cables to further subdivide our nodes to 125 homes if growth so dictates. Our network has excellent broadband frequency characteristics and physical durability, which is conducive to providing
video, data transmission and voice service.

As of December 31, 2005, our network consisted of approximately 10,200 miles of network,
passed approximately 750,000 marketable homes and served approximately 427,000 connections. Our interactive broadband network is designed using redundant fiber-optic cables. Our SONET rings are self-healing, which means that they provide
for the very rapid, automatic redirection of network traffic so that if there is a single point of failure on a fiber ring, our service will continue.

We power our network from locations called hub sites, each of which is equipped with a generator and battery back-up power source to allow service to continue during a power outage. Additionally, individual nodes that
are served by hubs are equipped with back-up power. Our redundant fiber-optic cables and network powering systems allow us to provide circuit-based voice services consistent with industry reliability standards for traditional telephone systems.



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We monitor our network 24 hours a day, seven days a week from our network operations center in West
Point, Georgia. Technicians in each of our service areas schedule and perform installations and repairs and monitor the performance of our interactive broadband network. We actively maintain the quality of our network to minimize service
interruptions and extend the networks operational life.

Video

We offer video services over our network in the same way that traditional cable companies provide cable TV service. Our network is designed for an analog
and digital two-way interactive transmission with fiber-optic cable carrying signals from the headend to hubs, the distribution point within our customers neighborhoods, where the signals are transferred to our coaxial cable network for
delivery to our customers.

Voice

We offer telephone service over our broadband network in much the same way local phone companies provide service. We install a network interface box outside a customers home to provide dial tone service. Our
network interconnects with those of other local phone companies. We provide long-distance service using leased facilities from other telecommunications service providers. We have two Class 5, full-featured Nortel DMS 500 switches located in
West Point, Georgia and nearby Huguley, Alabama that direct all of our voice traffic and allow us to provide enhanced custom calling services including call waiting, call forwarding and three-way calling. We also operate a telephone system in
Valley, Alabama and West Point, Georgia, where we are the rural incumbent telephone company.

Data

We provide Internet access using high-speed cable modems in much the same way customers currently receive Internet services over modems linked to the
local telephone network. The cable modems we presently use are significantly faster than dial-up modems generally in use today. Our customers Internet connections are always on, and there is no need to dial-up for access to the Internet or
wait to connect through a port leased by an Internet service provider. We provide our customers with a high level of data transfer rates through multiple peering arrangements with tier-one Internet facility providers.

Our Bundled Service Offering

We offer a complete
solution of video, voice and data services in all of our markets. We have begun enhancing our network assets in Pinellas County, Florida that we acquired from Verizon Media to provide voice services and offer these services to approximately 60% of
that market.

We offer a broad range of service bundles designed to address the varying needs and interests of existing and potential
customers. We sell individual services at prices competitive to those of the incumbent providers, but attractively price additional services from our bundle. Bundling our services enables us to increase penetration and operating efficiencies,
facilitate customer service, reduce customer acquisition and installation costs, and increase customer retention.

Our bundled strategy
means that we may deliver more than one service to each customer, and therefore we report an aggregate number of connections for video, voice and data services. For example, a single customer who purchases local video, voice and data services would
count as three connections.

Video services

We offer our customers a full array of video services and programming choices. Customers generally pay initial connection charges and fixed monthly fees for video service. As of December 31, 2005, we provided
video services to 175,472 connections. As of December 31, 2005, 32.6% of our video connections subscribed for digital video.



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Our analog video service offering comprises the following:



| |  |  | Basic Service: All of our video customers receive a package of basic programming, which generally consists of local broadcast television and local community
programming, including public, government and educational access channels.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expanded Basic Service: This expanded programming level includes approximately 190 channels of satellite-delivered or non-broadcast channels, such as ESPN, MTV, USA,
CNN, The Discovery Channel, Nickelodeon and various home shopping networks.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Premium Channels: These channels provide commercial-free movies, sports and other special event entertainment programming, such as HBO, Showtime and Cinemax and are
available through our expanded basic and digital tiers of services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our platform enables us to provide an attractive service
offering of extensive programming as well as interactive services. Our digital video service consists of approximately 190 digital channels of programming, including our expanded basic cable service. We have recently introduced new service offerings
to strengthen our competitive position and generate additional revenues, including video-on-demand and subscriber video-on-demand. Video-on-demand permits customers to order movies and other programming on demand with VCR-like functions for a
fee-per-viewing basis. Subscriber video-on-demand is a similar service that has specific content available from our premium channel offerings for an incremental charge.

Voice services

Our voice services include local and long-distance telephone services. Our
telephone packages can be customized to include different combinations of the following core services:



| |  |  | local area calling plans;
| | - |  | -------------------------



| |  |  | flat-rate local and long-distance plans;
| | - |  | ----------------------------------------



| |  |  | a variety of calling features; and
| | - |  | ----------------------------------



| |  |  | measured and fixed rate toll packages based on usage.
| | - |  | -----------------------------------------------------

For local service, our customers pay a fixed monthly rate, plus additional charges per month for custom and advanced calling features such as call waiting, caller ID and voicemail. We also offer off-net voice services to a small number of
customers through an arrangement with a local utility provider in Newnan, Georgia.

Data services

We offer tiered data services to both residential and business customers that include high-speed connections to the Internet using cable modems. Because a
customers Internet service is offered over the existing cable connection in the home, no second phone line is required and there is no disruption of service when the phone rings or when the television is on. We offer IntroNet, a high speed
service aimed at first-time or dial-up Internet users. IntroNet is available at speeds of 256k which is faster than traditional dial-up, but slower than our typical high-speed service, and priced at a discount to our faster product. The IntroNet
product has been successful in capturing additional market share for us and providing a customer base to which higher speed data services may be marketed. Our data packages generally include the following:



| |  |  | speed from four up to seven megabits per second;
| | - |  | ------------------------------------------------



| |  |  | specialized technical support 24 hours a day, seven days a week;
| | - |  | ----------------------------------------------------------------



| |  |  | access to exclusive local content, weather, national news, sports and financial reports;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | value-added features such as e-mail accounts, on-line storage, spam protection and parental controls; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | a DOCSIS-compliant modem installed by a trained professional.
| | - |  | -------------------------------------------------------------



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Business services

Our broadband network also supports services to business customers, and accordingly, we have developed a full suite of products for small, medium and
large enterprises. We offer the traditional bundled product offering to these business customers. We also have developed new products to meet the more complex voice and data needs of the larger business sector. We offer passive optical network
service, which enables our customers to have T-1 voice services and data speeds of up to 100 megabits per second on our fiber network. We have introduced our Matrix product offering, which can replace customers aging, low functionality PBX
products with an IP Centrex voice and data service that offers more flexible features at a lower cost. In addition, we offer a virtual private network service to provide businesses with multiple sites the ability to exchange information privately
among their locations over our network. We serve our business customers from locally based business offices with customer service and network support 24 hours a day, seven days a week.

Broadband carrier services

We
use extra, unused capacity on our network to offer wholesale services to other local and long distance telephone companies, Internet service providers and other integrated services providers. We call these services our broadband carrier services.
While this is not a part of our core strategy, we believe our interactive broadband network offers other service providers a reliable and cost competitive alternative to other telecommunications service providers.

Customer Service and Billing

Customer service

Customer service is an essential element of our operations and marketing strategy, and we believe our quality of service and
responsiveness differentiates us from many of our competitors. A significant number of our employees are dedicated to customer service activities, including:



| |  |  | sales and service upgrades;
| | - |  | ---------------------------



| |  |  | customer activations and provisioning;
| | - |  | --------------------------------------



| |  |  | service issue resolutions; and
| | - |  | ------------------------------



| |  |  | administration of our customer satisfaction programs.
| | - |  | -----------------------------------------------------

We
provide customer service 24 hours a day, seven days a week. Our representatives are cross-trained to handle customer service transactions for all of our products and currently exceed the industry standards for call answer times. We operate a
centralized customer service call center in Augusta, Georgia, which handles all customer service transactions. In addition, we provide our business customers with local customer service, which we believe improves our responsiveness to customer needs
and distinguishes our product in the market. We believe it is a competitive advantage to provide our customers with the convenience of a single point of contact for all customer service issues for our video, voice and data service offerings and is
consistent with our bundling strategy.

We monitor our network 24 hours a day, seven days a week. Through our network operations center, we
monitor our digital video, voice and data services to the customer level and our analog video services to the node level. We strive to resolve service delivery problems prior to the customer being aware of any service interruptions.

Billing

We are an early
adopter of a single billing platform for video, voice and data services, which is part of an enterprise management system that we have implemented system wide. This system, which was developed to our specifications, enables us to send a single bill
to our customers for video, voice and data services.



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Sales and Marketing

We believe that we were the first-to-market service provider of a bundled video, voice and data communications service package in our current markets. Our sales and marketing materials emphasize the convenience,
savings and improved service that can be obtained by subscribing to our bundled services.

We position ourselves as the local provider of
choice in our markets, with a strong local customer interface and community presence, while simultaneously taking advantage of economies of scale from the centralization of certain marketing functions.

We have a sales staff in each of our markets including managers and direct sales teams for both residential and business services. Our standard
residential team consists of direct sales, outbound sales, and front counter sales as well as support personnel. Our business services sales team consists of our account executives, specialized business installation coordinators and dedicated
installation service teams. Our call center sales team handles all inbound telemarketing sales.

Our sales team is cross-trained on all our
products to support our bundling strategy. Our sales team is compensated based on connections and is therefore motivated to sell more than one product to each customer. Our marketing and advertising strategy is to target bundled service prospects
utilizing a broad mix of media tactics including broadcast television, cross channel cable spots, radio, newspaper, outdoor space, Internet and direct mail. We have utilized database-marketing techniques to shape our offers, segment and target our
prospect base to increase response and reduce acquisition costs.

We have implemented customer relationship management and retention
techniques, as well as customer referral tactics, including newsletters and personalized e-mail communications. These programs are designed to increase loyalty and retention and to vertically integrate our current base of customers.

Pricing for Our Products and Services

In June 2005, we repackaged our core products into seven pre-packaged combinations known as Simple Solutions. Our Simple Solutions offerings include four triple-play bundles (video, voice and data) designed with speed and
content in increasing values, and three two-product bundles. The Simple Solution bundles significantly reduced the number of plans our sales and call center personnel handle, simplifying the customers experience and reducing the products supported
in the billing system by our IT department. Product acceptance by new and existing customers has been strong. Through strategic pricing to our legacy customers and bundle upgrades, we are migrating customers to the new plans in an effort to
eliminate the legacy plans in our billing system.

We attractively price our services to promote sales of bundled packages. We offer
bundles of two or more services with tiered features and prices to meet the demands of a variety of customers. We also sell individual services at prices competitive to those of the incumbent providers. An installation fee, which is often waived
during certain promotional periods for a bundled installation, is charged to new and reconnected customers. We charge monthly fees for cable customer premise equipment.

Programming

We purchase some of our programming directly from the program networks by
entering into affiliation agreements with the programming suppliers. We also benefit from our membership with the National Cable Television Cooperative (NCTC), which enables us to take advantage of volume discounts. As of December 31, 2005,
approximately 64% of our programming was sourced from the cooperative which also handles our contracting and billing arrangements on this programming.



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Markets

Current Markets

We currently serve the following markets with our interactive broadband network:



|           |  |          |  |                 |  |                            |  |                                        |  |      |  |     
|---------- |  | -------- |  | --------------- |  | -------------------------- |  | -------------------------------------- |  | ---- |  | ----
|Year Added |  | Source   |  | Market          |  | MarketableHomes 12/31/2005 |  | Year Services First Offered By Knology
|           |  |          |  | Video           |  | Voice                      |  | Data                                  
|1995       |  | Acquired |  | Montgomery, AL  |  | 89,700                     |  | 1995                                   |  | 1997 |  | 1997
|1995       |  | Acquired |  | Columbus, GA    |  | 70,500                     |  | 1995                                   |  | 1998 |  | 1998
|1997       |  | Acquired |  | Panama City, FL |  | 60,400                     |  | 1997                                   |  | 1998 |  | 1998
|1998       |  | Acquired |  | Huntsville, AL  |  | 83,200                     |  | 1998                                   |  | 1999 |  | 1999
|1998       |  | Built    |  | Charleston, SC  |  | 68,100                     |  | 1998                                   |  | 1998 |  | 1998
|1998       |  | Built    |  | Augusta, GA     |  | 54,200                     |  | 1998                                   |  | 1998 |  | 1998
|1999       |  | Acquired |  | West Point, GA  |  | 12,300                     |  | 1999                                   |  | 1999 |  | 1999
|2000       |  | Built    |  | Knoxville, TN   |  | 39,200                     |  | 2001                                   |  | 2001 |  | 2001
|2003       |  | Acquired |  | Pinellas, FL    |  | 272,000                    |  | 2003                                   |  | 2004 |  | 2003

New Markets

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

Competition

We compete with a variety of communications companies because of the broad number of video, voice and data services we offer. Competition is based on service, content, reliability, bundling, value and convenience.
Virtually all markets for video, voice and data services are extremely competitive, and we expect that competition will intensify in the future. Our competitors are often larger, better-financed companies with greater access to capital resources.
These incumbents presently have numerous advantages as a result of their historic monopolistic control of their respective markets, brand recognition, economies of scale and scope and control of limited conduit relationships.

Video services

Cable
television providers. Cable television systems are operated under non-exclusive franchises granted by local authorities, which may result in more than one cable operator providing video services in a particular market. Other cable television
operations exist in each of our current markets, and many of those operations have long-standing customer relationships with the residents in those markets. Our competitors currently include Bright House Networks (Bright House), Charter
Communications, Inc. (Charter), Comcast Corporation (Comcast), Mediacom Communication Corporation (Mediacom) and Time Warner Cable, Inc. (Time Warner). We also encounter competition from direct broadcast satellite systems, including Direct TV, Inc.
(DirecTV) and Echostar Communications Corporation (Echostar), that transmit signals to small dish antennas owned by the end-user.

According to industry sources, satellite television providers presently serve approximately 27.5% of pay television customers in the United States; however, the satellite provider penetration in our markets is substantially less.
Competition from direct broadcast satellites could become significant as developments in technology increase satellite transmitter power and decrease the cost and size of equipment. Additionally,



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providers of direct broadcast satellites are not required to obtain local franchises or pay franchise fees. The Intellectual Property and Communications
Omnibus Reform Act of 1999 permits satellite carriers to carry local television broadcast stations and is expected to enhance satellite carriers ability to compete with us for customers. As a result, we expect competition from these companies
to increase.

Other television providers. Cable television distributors may, in some markets, compete for customers with
other video programming distributors and other providers of entertainment, news and information. Alternative methods of distributing the same or similar video programming offered by cable television systems exist. Congress and the Federal
Communication Commission (FCC) have encouraged these alternative methods and technologies in order to offer services in direct competition with existing cable systems. These competitors include satellite master antenna television systems and local
telephone companies.

We compete with systems that provide multichannel program services directly to hotel, motel, apartment, condominium
and other multiunit complexes through a satellite master antennaa single satellite dish for an entire building or complex. These systems are generally free of any regulation by state and local governmental authorities. Pursuant to the
Telecommunications Act of 1996, these systems, called satellite master antenna television systems, are not commonly owned or managed and do not cross public rights-of-way and, therefore, do not need a franchise to operate.

The Telecommunications Act of 1996 eliminated many restrictions on local telephone companies offering video programming, and we may face increased
competition from them. Several major local telephone companies, including BellSouth, have announced plans to provide video services to homes.

In addition to other factors, we compete with these companies using programming content, including the number of channels and the availability of local programming. We obtain our programming by entering into contracts or arrangements with
video programming suppliers. A programming supplier may enter into an exclusive arrangement with one of our video competitors, creating a competitive disadvantage for us by restricting our access to programming.

Voice services

In providing
local and long-distance voice services, we compete with the incumbent local phone company, various long-distance providers and VoIP telephone providers in each of our markets. BellSouth and Verizon are the incumbent local phone companies in our
current markets and are particularly strong competitors. We also compete with a number of providers of long-distance telephone services, such as AT&T, BellSouth, Sprint and Verizon. We also compete with a variety of smaller, more regional,
competitors that lease network components from BellSouth or Verizon and focus on the commercial segment of our markets. Recent regulatory decisions have reduced the economic opportunity for many of these providers.

We expect to continue to face intense competition in providing our telephone and related telecommunications services. The Telecommunications Act of 1996
allows service providers to enter markets that were previously closed to them. Incumbent local telephone carriers are no longer protected from significant competition in local service markets.

We are anticipating an increase in the deployment of VoIP telephone services. Following years of development, VoIP has been deployed by a variety of
service providers including other Multiple System Operators (MSOs) such as Cox Communications and Comcast and independent service providers such as Vonage Holding Corporation. Unlike circuit switched technology, this technology does not require
ownership of the last mile and eliminates the need to rent the last mile from the Regional Bell operating companies (RBOCs). VoIP is essentially a data service and can be more feature rich than traditional circuit-switched telephone service. The
VoIP providers will have differing levels of success based on their brand recognition, financial support, technical abilities, and legal and regulatory decisions. MediaComm has launched VoIP residential service in our Columbus, Georgia market.



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We believe that wireless telephone service, such as cellular and personal communication services, or PCS,
currently is viewed by most consumers as a supplement to, not a replacement for, traditional telephone service. Wireless service generally is more expensive than traditional local telephone service and is priced on a usage-sensitive basis. However,
there is evidence to indicate that wireless is gaining consideration as a replacement service, and the rate differential between wireless and traditional telephone service has begun to decrease and is expected to further decrease and lead to more
competition between providers of these two types of services.

Data services

Providing data services is a rapidly growing business and competition is increasing in each of our markets. Some of our competitors benefit from greater
experience, resources, marketing capabilities and name recognition. Cable television companies have entered the Internet access market. The incumbent cable television company in each of our markets currently offers high-speed Internet access
services.

Other competitive high-speed data providers include:



| |  |  | incumbent local exchange carriers that provide dial-up and DSL services;
| | - |  | ------------------------------------------------------------------------



| |  |  | traditional dial-up Internet service providers;
| | - |  | -----------------------------------------------



| |  |  | competitive local exchange carriers; and
| | - |  | ----------------------------------------



| |  |  | providers of satellite-based Internet access services.
| | - |  | ------------------------------------------------------

A
large number of companies provide businesses and individuals with direct access to the Internet and a variety of supporting services. In addition, many companies such as AOL and Microsoft Corporation offer online services consisting of access to
closed, proprietary information networks with services similar to those available on the Internet, in addition to direct access to the Internet. These companies generally offer data services over telephone lines using computer modems. Some of these
data service providers also offer high-speed integrated services using digital network connections and DSL connections to the Internet, and the focus on delivering high-speed services is expected to increase.

Bundled Services

Several of
our competitors have initiated business plans to deploy their own versions of the triple-play bundle in our markets. Comcast, Charter, Bright House, MeidaCom and other MSOs are in varying stages of launching VoIP and thereby enabling their third
service offering. Brighthouse launched VoIP in the Pinellas County market in mid-2004. Comcast and Charter have made numerous announcements about launching voice services and have done so in some of their markets. It is inevitable that these
providers will launch VoIP in all of their markets in the not too distant future.

BellSouth and Verizon have each initiated
agreements/partnerships with satellite providers enabling their third service offering (video). The Bell companies each have facilities-based initiatives to construct broadband (last-mile) networks in several markets nationwide. None of these
networks currently overlap with Knology. The Bell companies ability to provide the three services will increase competition for subscribers within Knologys markets.

Knology believes that its emphasis on proven technology for deploying telephone service enhances its product offering relative to the MSOs for the near future. Additionally, our direct relationship with the
programmers and NCTC for video content and control of our channel line-up provides an advantage for our video offering relative to the Bell companies for the foreseeable future.



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Legislation and regulation

The cable television industry is regulated by the FCC, some state governments and most local governments. Telecommunications carriers are regulated by the FCC and state public utility commissions. Providers of
Internet services generally are not subject to regulation. Federal legislative and regulatory proposals currently under consideration may materially affect the cable television, telecommunications services, and Internet services industries. The
following is a summary of federal laws and regulations affecting the growth and operation of the cable television and telecommunications industries and a description of relevant state and local laws.

Future federal and state legislative and regulatory changes may affect our operations. The impact of such legislative or regulatory actions on our
operations may be beneficial or adverse. The following description of certain major regulatory factors does not purport to be a complete summary of all present and proposed legislation and regulations pertaining to our operations.

Federal Regulation

Cable
Television Consumer Protection and Competition Act of 1992

The Cable Television Consumer Protection and Competition Act of 1992, or the
1992 Cable Act, increased the regulation of the cable industry by imposing rules governing, among other things:



| |  |  | rates for tiers of cable video services;
| | - |  | ----------------------------------------



| |  |  | access to programming by competitors of cable operators and restrictions on certain exclusivity arrangements by cable operators;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | access to cable channels by unaffiliated programming services;
| | - |  | --------------------------------------------------------------



| |  |  | terms and conditions for the lease of channel space for commercial use by parties unaffiliated with the cable operator;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | ownership of cable systems;
| | - |  | ---------------------------



| |  |  | customer service requirements;
| | - |  | ------------------------------



| |  |  | mandating carriage of certain local television broadcast stations by cable systems and the right of television broadcast stations to withhold consent for cable systems to carry
their stations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | technical standards; and
| | - |  | ------------------------



| |  |  | cable equipment compatibility.
| | - |  | ------------------------------

The legislation also
encouraged competition with existing cable television systems by:



| |  |  | allowing municipalities to own and operate their own cable television systems without a franchise;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable systems service area;
and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibiting the common ownership of cable systems and other types of multichannel video distribution systems.
| | - |  | -------------------------------------------------------------------------------------------------------------

Telecommunications Act of 1996

The
Telecommunications Act of 1996 (1996 Act) and the FCC rules implementing the 1996 Act radically altered the regulatory structure of telecommunications markets by mandating that states permit competition for local telephone services. The 1996 Act
placed certain requirements on most incumbent local exchange carriers to open their networks to competitors, resell their services at a wholesale discount, and permit other carriers to collocate equipment on incumbent local exchange carrier
premises. Rural carriers may be exempt from these



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incumbent local exchange carrier requirements, as currently is the case with our incumbent local exchange carrier subsidiaries, Interstate Telephone and
Valley Telephone. The following is a summary of the interconnection and other rights granted by the 1996 Act that are most important for full local telecommunications competition, and our belief as to the effect of the requirements, assuming
vigorous implementation.



| |  |  | interconnection of competitors with the networks of incumbents and other carriers, which permits customers of competitors to exchange traffic with customers connected to other
networks;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unbundling of local loops and other elements of the incumbent local exchange carriers networks, as well as collocation rights, which allows competitors to selectively gain
access to incumbent carriers facilities that connect the incumbent carriers central offices with customer premises, to transmission facilities that connect incumbents central offices, and certain incumbent network capabilities,
thereby enabling competitors to serve customers not directly connected to their networks on a facilities basis;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reciprocal compensation, which mandates arrangements for local traffic exchange between both incumbent and competitive carriers and compensation for terminating local traffic
originating on other carriers networks, thereby improving competitors margins for local service;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | number portability, which allows customers to change local carriers without changing telephone numbers, thereby removing a significant barrier for a potential customer to switch to
a different carriers local voice services; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dialing parity, which enables competitors to provide telephone numbers to new customers on the same basis as the incumbent carrier.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

This 1996 Act also permitted Regional Bell Operating Companies under certain conditions to apply to the FCC for authority to provide long-distance
services.

The 1996 Act also included significant changes in the regulation of cable operators. For example, the FCCs authority to
regulate the rates for cable programming service tiers, that is all tiers other than the lowest level basic service tier, of all cable operators expired on March 31, 1999. The legislation also:



| |  |  | repealed the anti-trafficking provisions of the 1992 Cable Act, which required cable systems to be owned by the same person or company for at least three years before they could be
sold to a third party;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eliminated franchising requirements and the payment of franchise fees for Open Video System (OVS) operators;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | allows cable operators to enter telecommunications markets which historically have been closed to them;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | limits the rights of franchising authorities to require certain technology or to prohibit or condition the provision of telecommunications services by the cable operator;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adjusts the favorable pole attachment rates afforded cable operators under federal law such that they may be increased, beginning in 2001, if the cable operator also provides
telecommunications services over its network; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allows some telecommunications providers to begin providing competitive cable service in their local service areas.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Regulation of Cable Services

The
FCC, the principal federal regulatory agency with jurisdiction over cable television, has promulgated regulations covering many aspects of cable television operations. The FCC may enforce its regulations through the imposition of fines, the issuance
of cease and desist orders and/or the imposition of other administrative sanctions. A brief summary of certain key federal regulations follows.



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Rate regulation. The 1992 Cable Act authorized rate regulation for certain cable services and
equipment. The Act eliminated oversight by the FCC and the community of all but the basic service tier. The 1992 Cable Act requires communities to certify with the FCC before regulating basic cable rates. Cable service rate regulation does not apply
where a cable operator demonstrates to the FCC that it is subject to effective competition in the community. To the extent that any municipality attempts to regulate our basic rates or equipment, we believe we could demonstrate to the FCC that our
systems all face effective competition and, therefore, are not subject to rate regulation.

On February 9, 2006, the FCC released a
report describing the possibility of multichannel video programming distributors (MVPD) to offer a la carte and themed-tier services, and thus increasing consumer choice in purchasing video programming and providing substantial consumer benefits. In
the original report, the FCC concluded that a la carte pricing did not provide substantial economic benefits to consumers and, instead, increased the costs, including operational and marketing for MVPDs. The new report concludes that a la carte
pricing and themed-tiers do provide real economic benefits to consumers. The FCC did not adopt the finding of the new report and it has not required that cable system operators offer a la carte pricing or themed-tiers. Material changes in the rate
requirements may be considered in the future and, if such changes are adopted, the profitability of our cable business could be adversely affected.

Ownership limits. The FCC is directed to establish reasonable limits on the number of subscribers a cable operator may serve (a horizontal limit), and the number of channels a cable operator may devote to its affiliated programming
networks (a vertical or channel occupancy limit). The FCC originally established a 30 percent national audience (cable subscriber) reach (horizontal) and a 40 percent channel occupancy limit (vertical), but these were remanded by to the FCC by the
DC Circuit in Time Warner Entertainment Co. v. FCC, as being unduly burdensome on cable operators First Amendment rights and lacking sufficient justification for the limits. The FCC sought comment and is currently reviewing these
limits. To the extent that the FCC establishes new horizontal and vertical limits, we believe we could demonstrate compliance with any such restrictions. Such limits could have an adverse impact on some of our competitors, depending on any final
regulations adopted.

Program access. To promote competition with incumbent cable operators by independent cable programmers, the
1992 Cable Act placed restrictions on dealings between cable programmers and cable operators. Satellite video programmers affiliated with cable operators are prohibited from favoring those cable operators over competing distributors of multichannel
video programming, such as satellite television operators and competitive cable operators such as us. These restrictions are designed to limit the ability of vertically integrated satellite cable programmers from offering exclusive programming
arrangements or preferred pricing or non-price terms to cable operators. Congress and the FCC have considered, but not adopted, proposals to expand the program access rights of cable competitors such as us, including the possibility of applying all
program access requirements to terrestrially delivered video programming and all video programmers. The program access rules will sunset on October 5, 2007, unless further extended by the FCC. If the exclusivity restrictions are
allowed to sunset, this could have a materially adverse impact on us if incumbent cable operators use the greater flexibility that would be afforded to them to deny important programming to our systems.

Carriage of broadcast television signals. The 1992 Cable Act established broadcast signal carriage requirements that allow local commercial
television broadcast stations to elect every three years whether to require the cable system to carry the station (must-carry) or whether to require the cable system to negotiate for consent to carry the station (retransmission consent). Stations
are generally considered local to a cable system where the system is located in the stations Nielsen designated market area. Cable systems must obtain retransmission consent for the carriage of all distant commercial broadcast stations, except
for certain superstations, that are commercial satellite-delivered independent stations such as WGN. Pursuant to the Satellite Home Viewer Improvement Act, the FCC enacted rules governing retransmission consent negotiations between broadcasters and
all distributors of multichannel video programming (including cable operators). Local non-commercial television stations are also given mandatory carriage rights, subject to certain exceptions, within a certain limited radius. Non-commercial
stations are not given the option to negotiate for retransmission



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consent. Must-carry requests may decrease the attractiveness of the cable operators overall programming offerings by including less popular programming
on the channel line-up, while retransmission consent elections may involve cable operator payments (or other concessions) to the programmer. We carry some stations pursuant to retransmission consent agreements and pay fees for such consents or have
agreed to carry additional services. We carry other stations pursuant to must-carry elections.

The rules the FCC has adopted for the
carriage of digital broadcast signals do not require cable systems to carry both the analog and digital signals of television broadcast stations entitled to must-carry rights during those stations transition to full digital operations. This
decision was reaffirmed by the FCC in 2005, finding it not necessary either to advance governmental interests or to achieve the digital television transition. The FCC has also ruled that a cable operator need only carry a broadcasters
primary video service (rather than all of the digital broadcasters multi-cast services). This decision was also reaffirmed by the FCC in 2005.

Registration procedures and reporting requirements. Before beginning operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will carry and certain other information. Additionally, cable operators periodically are required to file various informational reports with the FCC. Cable operators that operate
in certain frequency bands, including us, are required on an annual basis to file the results of their periodic cumulative leakage testing measurements. Operators that fail to make this filing or who exceed the FCCs allowable cumulative
leakage index risk being prohibited from operating in those frequency bands in addition to other sanctions.

Equal Employment
Opportunity (EEO) Rules and Policies. The 1992 Cable Act established rules that prohibit discrimination by cable operators. They also require cable operators to provide notice of job vacancies and to undertake additional outreach measures, such
as job fairs and scholarship programs, while at the same time affording them enough flexibility to create the programs most effective for their communities. The FCC established specific record keeping obligations relating to EEO compliance. In
addition, the EEO rules will be enforced through review at renewal time, at mid-term for larger broadcasters, and through random audits and targeted investigations resulting from information received as to possible violations. To the extent the FCC
conducts an audit, we believe that we could demonstrate compliance with the requirements.

Customer equipment regulation. As noted,
cable customer equipment is subject to rate regulation unless the FCC deems the cable system to face effective competition. The FCC has also required that cable customers be permitted to purchase cable converters and other navigation device
equipment from third parties, such as retailers. It developed a multiyear phase-in period during which security functions (which remain in the exclusive control of the cable operator) would be unbundled from non-security functions, which then could
be supplied by third-party vendors.

The FCC wants consumers to be able to directly connect their retail equipment, including television
receivers, digital recorders and video cassette recorders, with cable television systems. In order to facilitate this connectivity, the FCC has required that all cable operators replace or upgrade subscriber-leased high definition set-top boxes,
upon customer request, to ensure that customers are able to access advanced, interactive cable services. The set-top boxes must be capable of meeting certain industry-established technical standards which will enable connectivity between customer
equipment and cable systems. In addition, all digital cable systems are required to separate out from its navigation equipment the security functions which control access to paid subscription programming. Unaffiliated manufacturers, retailers and
vendors will be allowed to make the equipment commercially available and it will be integrated into or used in conjunction with subscriber-purchased navigation devices to allow access to all cable system features previously available only by using
cable system provided-equipment. Petitions for reconsideration of the FCCs requirements are under review, and the deadlines for compliance with these requirements have been suspended during the review of the pending petitions.

The separate security module requirement applies to all digital devices as well as to devices that access both analog and digital services (hybrid
devices), although it does not apply to analog-only devices. As long as cable



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operators subject to the rules comply with the separate security module requirement, they may continue to provide their customers with devices that contain
both embedded security and nonsecurity functions (integrated devices) until July 1, 2007, at which time they will be prohibited from placing these devices in service.

In March 2005, in connection with the FCCs assessment of the state of the navigation device market, the FCC established additional reporting
requirements to ensure that progress continues towards its goal of assuring the commercial availability to consumers of converter boxes, interactive communications equipment and other equipment. The reporting requirements include the feasibility of
downloadable security in the industry (due on December 1, 2005); status of two-way plug-and-play deployment (due August 1, 2005 and every 60 days thereafter, to be filed by NCTA and CEA); and the status of CableCARD use in the market (due
August 1, 2005 and ever 90 days thereafter, to be filed by the 6 largest cable operators). The FCC restrictions could negatively affect how we develop and market new services and equipment to our customers.

Franchise authority. Cable television systems operate pursuant to franchises issued by local franchising authorities (which are the cities,
counties or political subdivisions in which a cable operator provides cable service). Local franchising authority is premised upon the cable operators facilities crossing the public rights-of-way. Franchises are typically of fixed duration
with the prospect for renewal. These franchises must be nonexclusive. The terms of local franchises vary by community, but typically include requirements concerning service rates, franchise fees, construction timelines, mandated service areas,
customer service standards, technical requirements, public, educational and government access channels, and channel capacity. Franchises often may be terminated, or penalties may be assessed, if the franchised cable operator fails to adhere to the
conditions of the franchise. Although largely discretionary, the exercise of local franchise authority is limited by federal law. For example, local franchise authorities may not issue exclusive franchises, may not require franchise fees that exceed
5% of gross revenues from the provision of cable services, and may not mandate the use of a particular technology. Local franchise authorities are permitted to charge fees other than cable franchise fees, such as fees for a telecommunications
providers use of public rights-of-way. We hold cable franchises in all of the franchise areas in which we provide service. We believe that the conditions in our franchises are fairly typical for the industry. Our franchises generally provide
for the payment of fees to the municipality ranging from 3% to 5% of revenues from telephone and cable television service, respectively. The Telecommunications Act of 1996 exempted those telecommunications services provided by a cable operator or
its affiliate from cable franchise requirements, although municipalities retain authority to regulate the manner in which a cable operator uses the public rights-of-way to provide telecommunications services.

In late 2005, the FCC, launched a major investigation into the scope of local franchising authority (LFAs) authority to grant multiple cable television
franchises under the 1992 Cable Act. The FCC sought comment on the cable franchising process, in general, and on whether or not specific LFA actions were tantamount to a barrier to entry into the video services market. The FCC also sought comment on
whether it is unreasonable for LFAs to: (1) require ubiquity in the provision of service throughout the LFAs area and to prohibit cherry-picking its coverage based on income of the residents; (2) allow a reasonable time for the provider to
become capable of providing service to all households in the franchised area; and (3) require adequate public, educational and government (PEG channels) access. In addition, the FCC sought comment on whether and, if so, how it can intervene in
the franchising process to reduce delay for new entrants and ensure the increase in competitive offerings within the franchised area, including how to implement Section 621(a)(1). The outcome of this proceeding could be beneficial to us,
especially if the FCC concludes that it has the authority to adopt regulations that eliminate, or substantially restrict the activity of LFAs in the cable franchising process.

Franchise renewal. Franchise renewal, or approval for the sale or transfer of a franchise, may involve the imposition of additional requirements
not present in the initial franchise (such as facility upgrades or funding for public, educational, and government access channels). Although franchise renewal is not guaranteed, federal law imposes certain standards to prohibit the arbitrary denial
of franchise renewal. Our franchises generally have 10 to 15 year terms, and we expect our franchises to be renewed by the relevant franchising authority before or upon expiration.



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Franchise transfer. Local franchise authorities are required to act on a cable operators
franchise transfer request within 120 days after receipt of all information required by FCC regulations and the franchising authority. Approval is deemed granted if the franchising authority fails to act within such period.

Pole attachments. Federal law requires utilities, defined to include all local telephone companies and electric utilities except those owned by
municipalities and co-operatives, to provide cable operators and telecommunications carriers (with the exception of incumbent LECs) with nondiscriminatory access to poles, ducts, conduit and rights-of-way at just and reasonable rates. The right to
access is beneficial to facilities-based providers such as us. Federal law also establishes principles to govern the pricing of and terms of such access. Utilities may charge telecommunications carriers (and cable operators providing both cable
television service and telecommunications service, such as us) a different (often higher) rate for pole attachments than they charge cable operators providing solely cable service. The FCC adopted rules implementing the two different statutory
formulas for pole attachment rates. These regulations became effective on February 8, 2001, and increases in attachment rates relative to rates for providers that exclusively provide cable service resulting from the regulations were phased-in
in equal annual increments over a period of five years. The phase-in is now complete. The federal pole attachment access and rate provisions apply only in those states that have not certified to the FCC that they regulate pole attachment rates.
Currently, 18 states plus the District of Columbia have certified to the FCC, leaving pole attachment matters to be regulated by those states. Of the states in which we operate, none has certified to the FCC. The FCC has clarified that the provision
of Internet services by a cable operator does not affect the agencys jurisdiction over pole attachments by that cable operator, nor does it affect the rate formula otherwise applicable to the cable operator. Although the U.S. Court of Appeals
for the Eleventh Circuit overturned the FCCs conclusion, the U.S. Supreme Court ultimately upheld the FCC.

Inside wiring of
multiple dwelling units. FCC rules provide generally that, in cases where the cable operator owns the wiring inside a multiple dwelling unit but has no right of access to the premises, the multiple dwelling unit owner may give the cable operator
notice in the event it intends to permit another cable operator to provide service there. The cable operator then must elect whether to remove the inside wiring, sell the inside wiring to the multiple dwelling unit owner at a price not to exceed the
replacement cost of the wire on a per-foot basis, or abandon the inside wiring. The FCC also adopted rules that, among other things, require utilities (including incumbent local exchange carriers and other local exchange carriers) to provide
telecommunications carriers and cable operators with reasonable and nondiscriminatory access to utility-owned or controlled conduits and rights-of-way in all multiple tenant environments (including, for example, apartment buildings,
office buildings, campuses, etc.) in those states where the FCC possesses authority to regulate pole attachments,i.e., in those states where the state government has not certified to the FCC that it regulates utility pole attachments and
rights-of-way matters.

In late 2004, in response to a remand decision by the U.S. Court of Appeals for the DC Circuit, the FCC initiated a
rulemaking proceeding to examine how cable television inside wiring rules pertain to home run wiring. Home run wiring is wiring located behind sheet rock, which is considered to be physically inaccessible for purposes of determining the demarcation
point between inside wiring and home run wiring. The comment cycle ended in December 2004, but the FCC has not released a decision in that proceeding.

Access to and competition in multiple dwelling units by and among video operators. The FCC has preempted laws and rules that restrict occupants of multiple dwelling units from placing small satellite antennas
on their balconies (or areas under the occupants exclusive use). The FCCs action increases the ability of satellite television operators such as DirecTV to compete with us in certain multiple dwelling units. The FCC recently decided not
to abrogate or restrict existing or future exclusive video multiple dwelling unit access contracts by multichannel video programming distributors. The decision not to abrogate existing exclusive multiple dwelling unit access contracts may restrict
us in competing with the incumbent cable operator (or other video competitors) in those multiple dwelling units where another cable operator has obtained an exclusive access arrangement.



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Privacy. Federal law restricts the manner in which cable operators can collect and disclose data
about individual system customers. Federal law also requires that the cable operator periodically provide all customers with written information about its policies regarding the collection and handling of data about customers, their privacy rights
under federal law and their enforcement rights. Cable operators must also take such actions as are necessary to prevent unauthorized access to personally identifiable information. Failure to adhere to these requirements subjects the cable operator
to payment of damages, attorneys fees and other costs.

Copyright. Cable television systems are subject to federal compulsory
copyright licensing covering carriage of broadcast signals. In exchange for making semi-annual payments to a federal copyright royalty pool and meeting certain other obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of the royalty payment varies, depending on the amount of system revenues from certain sources, the number of distant signals carried, and the location of the cable system with respect to over-the-air television stations.

Adjustments in copyright royalty rates are made through an arbitration process supervised by the U.S. Copyright Office. The modification
or elimination of the compulsory copyright licensing scheme could adversely affect our ability to provide our customers with their desired broadcast programming.

Internet service. The FCC rejected requests by some Internet service providers to require cable operators to provide unaffiliated Internet service providers with direct access to the operators broadband
facilities. A contrary decision may have facilitated greater competition by non-facilities-based Internet service providers with our broadband service offerings. In addition, the FCC sought comment on the scope of its jurisdiction to regulate cable
modem service and the extent to which state and local governments may regulate cable modem service. Although the FCC has indicated a clear preference for minimizing regulation of broadband services, future regulation of cable modem service by
federal, state or local government entities remains possible. The FCC also sought comment on whether it should resolve any disputes that may arise over cable operators previous collection of franchise fees from their customers based, in part,
on cable modem service revenues, or whether the FCC should leave such matters to the courts. There remains a risk that we will confront litigation on this issue. See also Regulatory treatment of cable modem service under Regulation
of Telecommunications Services.

Regulatory fees. The FCC requires payment of annual regulatory fees by the various industries
it regulates, including the cable television industry. Regulatory fees may be passed on to customers as external cost adjustments to rates for basic cable service. Fees are also assessed for other FCC licenses, including licenses for business radio,
cable television relay systems and earth stations. These fees, however, may not be collected directly from customers as long as the FCCs rate regulations remain applicable to the cable system.

Tier buy-through. The tier buy-through prohibition of the 1992 Cable Act generally prohibits cable operators from requiring subscribers to
purchase a particular service tier, other than the basic service tier, in order to obtain access to video programming offered on a per-channel or per-program basis. In general, a cable television operator has the right to select the channels and
services that are available on its cable system. With the exception of certain channels, such as local broadcast television channels, that are required to be carried by federal law as part of the basic tier, as discussed above, the cable operator
has broad discretion in choosing the channels that will be available and how those channels will be packaged and marketed to subscribers. In order to maximize the number of subscribers, the cable operator selects channels that are likely to appeal
to a broad spectrum of viewers. If the Congress or the FCC were to place more stringent requirements on how we package our services, it could have an adverse effect on our profitability.

Potential regulatory changes. The regulation of cable television systems at the federal, state, and local levels is subject to the political
process and has seen constant change over the past decade. Material additional changes in the law and regulatory requirements must be anticipated in the future, even if what those changes will be cannot be ascertained with any certainty at this
time. Our business could be adversely affected by future regulations.



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Regulation of Telecommunication Services

Our telecommunications services are subject to varying degrees of federal, state and local regulation. Pursuant to the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, the FCC generally exercises jurisdiction over the facilities of, and the services offered by, telecommunications carriers that provide interstate or international communications services. Barring
federal preemption, state regulatory authorities retain jurisdiction over the same facilities to the extent that they are used to provide intrastate communications services, as well as facilities solely used to provide intrastate services. Local
regulation is largely limited to management of the occupation and use of county or municipal public rights-of-way. Various international authorities may also seek to regulate the provision of certain services.

As explained above, incumbent local exchange carriers are subject to obligations (under Section 251(c) of the federal Communications Act) to open
their networks to competitive access, including both unbundling and collocation obligations, as well as heightened interconnection obligations and a duty to make their services available to resellers at a wholesale discount rate. The Communications
Act includes an exemption from Section 251(c) requirements for rural telephone companies, absent a finding by the appropriate state commission that the request is not unduly economically burdensome. Both Interstate Telephone and Valley
Telephone are rural telephone companies as defined by the federal Communications Act. With respect to Valley Telephone and Interstate Telephone, the Alabama Public Service Commission and Georgia Public Service Commission, respectively, have
determined that these companies should be exempt from the incumbent local exchange carrier interconnection requirements under Section 251(c) of the Communications Act. In the event the circumstances upon which these determinations are based
change in the future, it is possible these conclusions could be revisited and reversed, exposing either company to the incumbent local exchange carrier interconnection, unbundling, wholesale discount, and/or collocation obligations.

Tariffs and detariffing. Our subsidiary, Knology Broadband, Inc., or Broadband, is classified by the FCC as a non-dominant carrier with respect to
both its domestic interstate and international long-distance carrier services and its competitive local exchange carrier services. As a non-dominant carrier, its rates presently are not generally regulated by the FCC, although the rates are still
subject to general requirements that they be just, reasonable, and nondiscriminatory. The FCC has ordered mandatory detariffing of non-dominant carriers interstate and international interexchange services, except in very limited circumstances.
Rather, we must post standard rates, terms, and conditions on the Internet and negotiate and/or execute individual agreements with each of our customers to cover the rates, terms and conditions for our provision of such services, including
limitations on liability. The FCCs detariffing regime has no impact on our tariffs for intrastate services, nor does it affect the federal access charge tariff system. However, it is uncertain whether we will be able to execute individual
agreements with each of our long-distance customers on favorable terms going forward and whether the additional costs of having to comply with this regime will have an adverse effect on our revenues. There is also some uncertainty about whether, in
the absence of a tariff, such carrier protections such as strict limitations on liability, can be negotiated with the end users and, if they are, whether they are enforceable.

Non-dominant local exchange carriers are not permitted to file tariffs with the FCC for their interstate access services if the charges for such services
are higher than FCC benchmarks established in 2001. If a non-dominant carriers charges for interstate access services are equal to or below the FCC-established benchmark, it is permitted, but not required, to file tariffs with the FCC for such
services. Our interstate access services fall within the FCC-established benchmark and we have a tariff on file with the FCC for those services. While we do not know what the FCC will ultimately decide in its intercarrier compensation proceeding
(see Interconnection and Compensation for Transport and Termination, below), we can be expected to face continued downward pressure on our switched access rates.

Interstate Telephone and Valley Telephone are regulated by the FCC as dominant carriers in the provision of interstate switched access services. As
dominant carriers, Interstate Telephone and Valley Telephone must file tariffs with the FCC and must provide the FCC with notice prior to changing their rates, terms or conditions of interstate access services. Interstate Telephone has its own
tariffs on file with the FCC, while Valley Telephone



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concurs in tariffs filed by the National Exchange Carrier Association. Interstate Telephone and Valley Telephone are both classified as non-dominant in the
provision of interstate and international interexchange services, rendering them subject to mandatory detariffing at the FCC for such services, as described above.

Interconnection and compensation for transport and termination. The Telecommunications Act of 1996 established a national policy to foster the development of local telephone competition. This Act preempts laws
that prohibit competition for local telephone services and establishes requirements and standards for local network interconnection, unbundling of network elements, and resale. The Telecommunications Act of 1996 also requires incumbent local
exchange carriers to enter into mutual compensation arrangements with competitive local exchange companies for transport and termination of local calls on each others networks. The interconnection, unbundling, and resale standards were
developed by the FCC in a series of orders and have been further implemented by the states and reviewed by the federal courts of appeals. The terms of interconnection agreements among the carriers have been, and are likely to continue to be,
overseen by the states. Although a panel of judges from the U.S. Court of Appeals for the Eleventh Circuit (the jurisdiction in which many of our markets are located) previously concluded that state public service commissions lack the authority
under Section 252 of the federal Communications Act to interpret and enforce interconnection agreements, the court en banc has reversed that conclusion and agreed with at least six other federal circuits that the states do have such authority.

We have executed local network interconnection agreements with BellSouth, Sprint, and Verizon for, among other things, the transport and
termination of local telephone traffic. These agreements have been filed with, and approved by, the applicable regulatory authority in each state in which we conduct our operations and in which the agreements apply. These agreements are subject to
changes as a result of changes in laws and regulations, and there is no guarantee that the interconnection agreement rates and terms under which we operate today will be available in the future.

Intercarrier compensation for transport and termination. The FCC has concluded that calls to Internet service providers are jurisdictionally
interstate and the exchange of ISP-bound traffic is not subject to the reciprocal compensation requirements of the Communications Act. The FCC established an interim scheme, however, whereby traffic below a 3:1 originating-to-terminating ratio is
presumed to be reciprocal compensation traffic and traffic above 3:1 is presumed to be ISP-bound. While the FCC decision was remanded by the U.S. Court of Appeals for the D.C. Circuit to the FCC for further elaboration and as to the legal basis for
its decision, the Court let the interim scheme remain in effect. Until the FCC addresses the issue again, ISP-bound traffic is generally being exchanged at a lower rate than other reciprocal compensation traffic. Under our interconnection
agreements, we exchange local traffic with incumbent carriers on a bill-and-keep basis (in which no compensation is actually paid).

In
March 2005, the FCC issued a further notice of proposed rulemaking requesting comment on various proposals to replace the existing intercarrier compensation regimes with a unified regime designed for the developing marketplace, including the
transport and termination of IP-enabled traffic (see Regulatory treatment of voice over Internet Protocol (IP) services, below). As part of the proceeding, the FCC will review numerous aspects of intercarrier compensation, including
transport and termination. The FCCs decision will impact the amounts that we both pay and receive from all carriers with whom we are interconnected, both directly and indirectly.

Access to unbundled network elements. Until March 2005, the FCCs rules had required incumbent local telephone carriers to provide an
unbundled network element platform that included all of the network elements required by a competitor to provide a retail local telecommunications service, including mass market circuit switching. Competitors using such platforms had the opportunity
to provide retail local services entirely through the use of the local telephone carriers facilities at deeper discounts than those available for local resale. In the FCCs Triennial Review Order, effective October 2, 2003, the FCC
determined that certain network elements would no longer be subject to unbundling, while other elements must continue to be offered subject to further,



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detailed review by the state public utility commissions. On March 2, 2004, the U.S. Court of Appeals for the D.C. Circuit vacated and remanded much of
the FCCs Triennial Review Order. In the FCCs Triennial Review Remand Order, effective March 11, 2005, the agency fundamentally changed its unbundling rules, adopting materially significant limits on the availability of unbundled
network elements. Although the FCC adopted transition plans for competing carriers to transition away from use of the delisted network elements to alternative facilities or arrangements, the plans apply only to the embedded customer base and do not
permit competitive carriers to add new customers or capacity to delisted network elements. The rules are subject to further clarification and reconsideration by the FCC, and review on appeal by the D.C. Circuit. In view of the uncertainty
surrounding the FCCs rules adopted in the Triennial Review Remand Order, we cannot at this time state with any certainty the impact of that Order upon our business.

The continued availability of a wide variety of unbundled network elements could benefit those of our local telecommunications competitors who, unlike us, do not provide service entirely over their own facilities;
conversely, the limiting of network elements available on an unbundled basis may discourage potential competitors who cannot, or do not wish to expend the capital required to build out their own facilities, and strengthen the positions of incumbent
carriers such as BellSouth and Verizon. Any material change in the FCCs regulations upon further review, appeal, or grants of forbearance to ILECs within our operating areas could have a significant impact on the competition we face.

Unbundled network element pricing. In September 2003, the FCC commenced a rulemaking proceeding, which is still pending, to review
globally the pricing principles that states must use to set rates for unbundled network elements. This proceeding ultimately could lead to significant changes in the pricing of unbundled network elements, which could in turn lead to significant
changes in the relative competitive position of our competitors. Apart from this proceeding, the FCC, in its Triennial Review Remand Order, effective March 11, 2005, adopted pricing rules that, in the absence of negotiated alternative
commercial arrangements, will apply to the dedicated transport, high-capacity loop, and mass market circuit switching elements of the incumbent local exchange carrier networks during specifically defined transition periods. The state commissions
have significant responsibility for the implementation of the FCCs rules, including the actual setting of rates for unbundled network elements. The availability of a wide variety of available unbundled network elements at attractive prices
could benefit those of our local telecommunications competitors who, unlike us, do not provide service entirely over their own facilities; conversely, the limiting of elements available on an unbundled basis or a relative increase in the prices of
such elements and platforms may discourage potential competitors who cannot, or do not wish to expend the capital required to build out their own facilities.

Number portability. All providers of telecommunications services must offer service provider local number portability, which the FCC has defined as the ability to retain, at the same location, existing
telephone numbers when switching local telephone companies without impairment of quality, reliability or convenience. Number portability is intended to remove one barrier to entry faced by new competitors, which would otherwise have to persuade
customers to switch local service providers despite having to change telephone numbers. Although number portability benefits our competitive local exchange carrier operations, it represents a burden to Valley Telephone and Interstate Telephone.
Moreover, wireline-to-wireless number portability may have an adverse impact on all wireline carriers because end users may port more numbers from wireline to wireless carriers than vice versa. Any changes to regulations regarding the recovery of
number portability costs would likely shift costs from ILECs to their competitors, which could have an overall adverse effect on our business.

Universal service. The FCC has adopted rules implementing the universal service requirements of the Telecommunications Act of 1996. The federal universal service fund is the support mechanism established by the FCC to ensure that
high quality, affordable telecommunications service is available to all Americans. Pursuant to the FCCs universal service rules, all telecommunications providers must contribute a percentage of their telecommunications revenues to the federal
universal service fund. As a telecommunications carrier, we are required to contribute to the federal universal service fund on the basis of our projected, collected interstate and international end user telecommunications revenues. The FCC devises
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federal universal service fund based on the ratio of total projected demand for universal service support as compared to total end user interstate and
international revenue for a given quarter. The contribution factor for the fourth quarter of 2005 was 10.2%. Accordingly, for the fourth quarter of 2005, we contributed approximately 10% of our combined interstate and international end user
telecommunications revenues to the federal universal service fund.

Carriers may assess a federal universal service surcharge on their
customers, either as a flat amount or a percentage of a customers revenue; however, this amount may not exceed the total amount of the universal service contribution factor currently in effect. As a result, we are precluded from assessing a
federal universal service-related charge on our end user customers in excess of the relevant interstate and international telecommunications portion of each customers bill times the relevant contribution factor. We remain able to recover
legitimate administrative costs relating to our contribution to the federal universal service fund, provided that such cost recovery is made through areas other than our universal service line item surcharge.

The FCC currently is conducting a comprehensive review of the rules governing contributions to the federal universal service fund. The FCC is considering
the adoption of a connection-based universal service contribution methodology in which entities would contribute to the federal universal service fund based on either the number of end user connections, the number of working telephone numbers, or
the amount of capacity per connection. The FCC is also considering the issue of broadband providers contribution to universal service and whether and how connections that provide broadband Internet accessincluding those using cable modem
technologywould be assessed for federal universal service fund purposes. Although the outcome of this proceeding and its effect on our business cannot be predicted, if any of these proposals are implemented, the amount of our contributions to
the federal universal service fund may increase, and could negatively impact our business, prospects, gross profits, cash flows and financial condition. The Congress is also considering several pieces of legislation which could affect the basis on
which universal service contributions are made and how the funds are distributed. Legislative or regulatory changes to federal universal service funding obligations could adversely affect us by increasing the payments owed to support the fund.
Changes to the universal service fund distribution mechanisms could affect our availability, or the opportunities for our qualified customers, to apply for and receive universal service funding.

Access charge reform. The FCC has adopted several orders in recent years having the effect of reducing switched access charges imposed by local
telephone companies for origination and termination of interstate long-distance traffic. Overall decreases in local telephone carriers access charges as contemplated by the FCCs access reform policies would likely put downward pricing
pressure on our charges to domestic interstate and international long-distance carriers for comparable access. Changes to the federal access charge regime could adversely affect us by reducing the revenues that we generate from charges to domestic
interstate and international long-distance carriers for originating and terminating interstate traffic over our telecommunications facilities.

The FCC has adopted an order, the MAG Plan, to reform interstate access charges and universal service support for rate-of-return incumbent local exchange carriers such as Valley Telephone and Interstate Telephone. The MAG Plan is designed
to lower access charges toward cost, replace implicit support for universal service with explicit support that is portable to all eligible telecommunications carriers, and provide certainty and stability for the small and mid-sized local telephone
companies serving rural and high-cost areas by permitting them to continue to set rates based on a rate-of-return of 11.25%, thereby encouraging rural investment. The MAG Plan, as adopted, will reduce switched access fees for small incumbent local
exchange carriers and protect universal service in areas served by those incumbent local exchange carriers. Although the MAG Plan significantly reduces per-minute access charge revenues to these carriers, it is designed to protect them for at least
the term of the plan from potentially much larger revenue reductions. On February 12, 2004, the FCC issued an order regarding the MAG Plan designed to streamline the FCCs rules further and increase rural carriers flexibility to
respond to market conditions. Petitions for reconsideration of the MAG Plan are currently pending before the FCC and the FCC has sought further comment on certain proposals related to the MAG Plan.



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The FCC issued a Notice of Public Rulemaking on February 10, 2005 in WC Docket No. 05-25. This
notice includes a broad examination of the regulatory framework that is applied to local exchange carriers interstate special access services preventing them from exceeding certain prices after June 30, 2005. In conducting this
examination, the FCC announced that it seeks comment on the special access regulatory regime that should follow the expiration of the Coalition for Affordable Local and Long Distance Service (CALLS) plan, including whether to maintain or modify the
Commissions pricing flexibility rules for special access services. We cannot predict whether the FCC will further modify its access change rules as a result of this proceeding or the effect that any such changes would have on our business.

In March 2005, the FCC requested further comment in its intercarrier compensation proceeding on replacing the existing intercarrier
compensation regimes with a unified regime designed for the developing marketplace, as previously discussed. As part of the proceeding, the FCC will review numerous aspects of intercarrier compensation, including access charges. The FCCs
decision will impact the amounts that we both pay and receive from all carriers with whom we are interconnected, both directly and indirectly, although the net effect for our operations cannot be predicted at this time (see discussion of
intercarrier compensation, above).

Regulatory treatment of voice over Internet Protocol (IP) services. Currently, the FCC and state
regulators do not treat most IP-enabled services, including those offering real time voice transmission, as regulated telecommunications services. A number of providers are using VoIP to compete with our voice services, and some providers using VoIP
may be avoiding certain regulatory obligations or access charges for interexchange services that might otherwise be due if such voice over IP offerings were subject to regulation. However, in March 2004, the FCC commenced a rulemaking proceeding to
comprehensively address the regulatory treatment of IP enabled services, including VoIP applications. Although we cannot predict when the FCC will issue a decision in this proceeding, the FCC has precluded states from regulating VoIP services by
ruling that IP-enabled services are subject to its exclusive jurisdiction. In response to individual petitions for declaratory ruling, the FCC has addressed specific VoIP applications. For example, in 2004, the FCC ruled that an AT&T service
using VoIP solely as an intermediate routing technology is a telecommunications service. By contrast, the FCC ruled that pulver.coms Free World Dialup service, which enables customers to make computer-to-computer VoIP calls, is an information
service. The FCC currently has before it a series of petitions for declaratory rulings requesting clarification on which parties are interexchange carriers for purposes of access charge liability on any IP-enabled traffic subject to access charges,
whether interexchange carriers not directly connected to local exchange carriers can be subject to access charges, intermediate, terminating LECs can rely on certification by their customers that traffic is enhanced services traffic is making
decisions regarding the routing of an intercarrier compensation for access traffic and other issues. The FCC is also considering proposals to address problems with so-called phantom traffic, traffic terminated on the local switched
telephone network which is often IP-enabled and which allegedly has been stopped of signaling information which allegedly prevents terminating LECs from determining whether the traffic is interexchange traffic that may be subject to access charges.
These and other similar proceedings could lead to an increase in the costs of VoIP providers if they become subject to additional regulation (in the absence of forbearance from the same), and may change the compensation structure for IP-enabled
services. At this time, we are unable to predict the impact, if any, that additional regulatory action on this issue will have on our business.

Other aspects of VoIP and Internet telephony services, such as regulations relating to the confidentiality of data and communications, copyright issues, taxation of services, licensing and 911 emergency access, may be subject to federal or
state regulation. For instance, in 2002 the FCC undertook an examination of whether emergency 911 requirements should be extended to packet-based networks and services, and on June 3, 2005 it released an order requiring providers of certain
VoIP services to provide enhanced 911 emergency services to their customers. Those requirements continue to be implemented and are subject to a series of petitions for reconsideration, for waiver, and requests for extension. Compliance with these
and other regulations the FCC may adopt regarding the treatment of VoIP services could increase ours costs of providing service. Similarly, changes in the legal and regulatory environment relating to the Internet connectivity market, including
regulatory changes that affect communications costs or that may increase the likelihood of competition from Regional Bell Operating Companies or other communications companies could increase our costs of providing service.



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Forbearance. The Telecommunications Act of 1996 permits the FCC to forbear from requiring
telecommunications carriers to comply with certain regulations if certain conditions are present. Future reduction or elimination of federal regulatory requirements could free us from regulatory burdens, but also might increase the flexibility of
our competitors.

Advanced services. The FCCs Triennial Review Order, effective October 2, 2003, significantly changed
many of the regulations governing the telecommunications industry. Among the changes adopted, the FCC determined that all-fiber loops to a customers premises are not subject to the mandatory unbundling provisions of the Telecommunications Act
of 1996, and that in the case of hybrid loops containing some fiber and some copper, the broadband capabilities of these loops do not need to be unbundled. These rulings give the incumbent local exchange carriers greater control over
whether, and at what price, broadband access facilities will be made available to third parties. Although the U.S. Court of Appeal for the D.C. Circuit vacated and remanded several aspects of the Triennial Review Order, the FCCs decisions
regarding broadband unbundling were upheld. Subsequently, the FCC extended its deregulation of broadband facilities to fiber loops deployed to multi-tenant buildings or campuses where the predominant use is residential and to loops with no more than
500 feet of copper (so-called fiber-to-the-curb loops). In October 2004, the FCC exempted the former Bell Telephone Company entities from long distance market entry provisions to the extent those provisions might have imposed a separate
obligation to unbundled all fiber or fiber-to-the-curb broadband loops.

On August 5, 2005, the FCC issued an order finding that
wireline broadband Internet access services are information services functionally integrated with a telecommunications component and therefore eliminated the long-standing requirement that incumbent local exchange companies share the
underlying transmission component used to provide Internet access services. The FCC had previously required facilities-based providers to offer that wireline broadband transmission component separately from their Internet service as a stand-alone
service on a common-carrier basis, and thus had previously classified that component as a telecommunications service. As a result, incumbent local exchange companies may now refuse to offer underlying broadband transmission services to unaffiliated
providers of broadband services or charge above-cost rates that make it economically infeasible for unaffiliated providers to compete with the incumbent local exchange companys broadband services. These carriers may contend that, as a result
of the FCCs wireline broadband order, they will no longer provide high capacity facilities as network elements for use in providing Internet access. If so, our competitors that currently rely on unbundled network elements may be forced to
substitute higher priced special access services for this purpose.

Regulatory treatment of cable modem services. The U.S. Supreme
Court recently upheld the FCCs classification of cable modem services as information services that do not contain a separate telecommunications service offering. As a result, cable modem providers are not required to comply with
common carrier telecommunications obligations, except to the extent that the Commission decides to apply similar obligations using its authority under Title I of the Communications Act, as amended. However, we have offered, and will likely continue
to offer, access to our network on a wholesale basis. Notwithstanding that the U.S. Supreme Courts decision is generally favorable to cable modem providers like us, the FCC may decide to treat providers of cable modem service as
telecommunications carriers, at least in part, as it relates to universal service contribution obligations and other social regulation. In addition, cable modem service providers may become subject to franchise and right-of-way requirements
separately applicable to telecommunications carriers, including franchise fees. Results imposing authorization and other telecommunications carrier requirements, obligations to contribute to universal service, franchise fees, or similar burdens may
have the effect of increasing the costs of providing cable modem service relative to non-cable-based alternatives, such as providers of Internet access through DSL service, depending upon how the FCC treats non-cable-based providers with respect to
obligations traditionally applied to providers of telecommunications service.

Access to, and competition in, multiple
dwelling units by and among telecommunications carriers.In October 2000, the FCC prohibited telecommunications carriers from entering into future exclusive access agreements with building owners or managers in commercial (but not residential)
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Simultaneously, the FCC adopted rules that require utilities (including incumbent local exchange carriers and other local exchange carriers) to provide
telecommunications carriers (and cable operators) with reasonable and non-discriminatory access to utility-owned or controlled conduits and rights-of-way in all multiple tenant environments (e.g., apartment buildings, office buildings, campuses,
etc.) in those states where the state government has not certified to the FCC that it regulates utility pole attachments and rights-of-way matters. The FCC has pending before it the question of whether to adopt rules abrogating existing exclusive
telecommunications carrier access arrangements in commercial multitenant environments. The FCC is also considering whether to extend prohibitions against exclusivity to residential multiple dwelling units. Finally, the FCC is considering rules that
would require owners of multi-tenant environments to allow telecommunications carriers nondiscriminatory access to their buildings. If adopted, these requirements may facilitate our access (as well as the access of competitors) to customers in
multi-tenant environments, at least with regard to its provision of telecommunications services. These prospective requirements, if adopted, may also increase competition in multiple dwelling units and other multi-tenant environments where we
currently provide service.

SBC-AT&T and Verizon-MCI Mergers.On October 31, 2005, the FCC approved the SBC-AT&T and
Verizon-MCI mergers, subject to certain conditions. The merger conditions, which the FCC set out in two separate orders issued on November 17, 2005, include: (1) the Regional Bell Operating Companies are prohibited from affirmatively
seeking any increase in state-approved rates for unbundled network elements for a period of two years from the respective merger closing dates; (2) the RBOCs shall not raise rates for DS1 and DS3 private line service provided by AT&T and
MCI for a period of 30 months from the respective merger closing dates; (3) the RBOCs shall not increase their interstate access rates for a period of 30 months following the respective merger closing dates; (4) for a period of 30 months
following the merger closing dates, the RBOCs will not provide special access offerings to their wireline affiliates that are not available to other similarly situated special access customers on the same terms and conditions; and (5) within 12
months of the respective merger closing dates, the RBOCs will offer stand-alone Asynchronous Digital Subscriber Line (ADSL) service throughout their regions for two years. The recent mergers of AT&T with SBC and Verizon
with MCI will effectively eliminate the two largest competitive local exchange carriers in the United States, each of which was a strong presence in federal and state lobbying related to telecommunications matters. These mergers will place an
increased demand on our resources and employees for lobbying and other regulatory matters and there can be no assurances that our efforts will prove effective.

Customer Proprietary Network Information. FCC rules protect the privacy of certain information about customers that communications carriers, including us, acquire in the course of providing communications
services. Such protected information, known as Customer Proprietary Network Information (CPNI), includes information related to the quantity, technological configuration, type, destination and the amount of use of a communications service. Certain
states have also adopted state-specific CPNI rules. The FCCs initial CPNI rules prevented a carrier from using CPNI to market certain services without the express approval of the affected customer, referred to as an opt-in approach. In
July 2002, the FCC revised its opt-in rules in a manner that limits our ability to use the CPNI of our subscribers without first engaging in extensive customer service processes and record keeping. The FCCs Enforcement Bureau recently
directed all telecommunications carriers to submit a certification stating that they are in compliance with the Commissions CPNI rules. We filed our compliance certificate on February 6, 2006, stating that we use our subscribers
CPNI in accordance with applicable regulatory requirements. However, if a federal or state regulatory body determines that we have implemented those guidelines incorrectly, we could be subject to fines or penalties. In addition, both the FCC and
Congress are considering whether additional security measures could prevent the unauthorized disclosure of sensitive customer information held by telecommunications companies.

Additional requirements. The FCC imposes additional obligations on all telecommunications carriers, including obligations to:



| |  |  | interconnect, directly or indirectly, with other carriers and not to install equipment that cannot be connected with the facilities of other carriers;
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| |  |  | ensure that their services are accessible and usable by persons with disabilities;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | provide telecommunications relay service either directly or through arrangements with other carriers or service providers, which service enables hearing impaired individuals to
communicate by telephone with hearing individuals through an operator at a relay center;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | comply with verification procedures in connection with changing a customers carrier;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | maintain equipment, facilities, and services in such a manner as to allow for the interception of wire and electronic communications and access to call-identifying information by
authorized law enforcement;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay annual regulatory fees to the FCC; and
| | - |  | ------------------------------------------



| |  |  | contribute to the Telecommunications Relay Services Fund, as well as funds to support telephone numbering administration and local number portability.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

State Telecommunications Regulation

Traditionally, the states have exercised jurisdiction over intrastate telecommunications services. The Telecommunications Act of 1996 modifies the dimensions of state authority in relation to federal authority. It also prohibits states and
localities from adopting or imposing any legal requirement that may prohibit, or have the effect of prohibiting, market entry by new providers of interstate or intrastate telecommunications services. The FCC is required to preempt any such state or
local requirement to the extent necessary to enforce the Telecommunications Act of 1996s open market entry requirements. States and localities may, however, continue to regulate the provision of intrastate telecommunications services (barring
federal preemption) and require carriers to obtain certificates or licenses before providing service.

Alabama, Georgia, Florida, Kentucky,
South Carolina and Tennessee each have adopted statutory and regulatory schemes that require us to comply with telecommunications certification and other regulatory requirements. To date, we are authorized to provide intrastate local telephone,
long-distance telephone and operator services in Alabama, Georgia, Florida, Kentucky, South Carolina and Tennessee. As a condition of providing intrastate telecommunications services, we are required, among other things:



| |  |  | to file and maintain intrastate tariffs or price lists describing the rates, terms and conditions of our services;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | to comply with state regulatory reporting, tax and fee obligations, including contributions to intrastate universal service funds; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to comply with, and to submit to, state regulatory jurisdiction over consumer protection policies (including regulations governing customer privacy, changing of service providers,
and content of customer bills), complaints, transfers of control and certain financing transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Generally, state
regulatory authorities can condition, modify, cancel, terminate or revoke certificates of authority to operate in a state for failure to comply with state laws or the rules, regulations and policies of the state regulatory authority. Fines and other
penalties may also be imposed for such violations. As we expand our telecommunications services into new states, we will likely be required to obtain certificates of authority to operate, and be subject to similar ongoing regulatory requirements, in
those states as well. We are certificated in all states where we currently have operations and certification is required. We cannot be sure that we will retain such certifications or that we will receive authorization for markets in which we expect
to operate in the future.

In addition, the states have authority under the Telecommunications Act of 1996 to determine whether we are
eligible to receive funds from the federal universal service fund. They also possess authority to approve or (in limited circumstances) reject agreements for the interconnection of telecommunications carriers facilities with those of the local
exchange carrier, and to arbitrate disputes arising in negotiations for interconnection. As mentioned previously, the Court of Appeals for the Eleventh Circuit (which governs many of our markets) have



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concluded that state public service commissions have the authority under Section 252 of the federal Communications Act to interpret and enforce
interconnection agreements. The states also have jurisdiction over whether Interstate Telephone and Valley Telephone will continue to be subject to exemptions as rural carriers from the incumbent local exchange carrier obligations under
Section 251(c) of the Communications Act.

Interstate Telephone and Valley Telephone are subject to additional requirements under
state law, including rate regulation and quality of service requirements. In Alabama and Georgia, both Interstate Telephone and Valley Telephone are subject to a price cap form of rate regulation. Under price caps, the companies have limited ability
to raise rates for intrastate telephone services, but the Alabama and Georgia Public Service Commission does not regulate the rate of return earned by the companies.

Taxes and Regulatory Fees.We are subject to numerous local, state and federal taxes and regulatory fees, including but not limited to a 3% federal excise tax on communications service, FCC
regulatory fees and public utility commission regulatory fees. We have procedures in place to ensure that we properly collect taxes and fees from our customers and remit such taxes and fees to the appropriate entity pursuant to applicable law and/or
regulation. If our collection procedures prove to be insufficient or if a taxing or regulatory authority determines that our remittances were inadequate, we could be required to make additional payments, which could have a material adverse effect on
our business.

On July 2, 2004, the Internal Revenue Service issued an advance notice of proposed rulemaking asking for public comment
on expanding the current 3% excise tax to new communications services, such as VoIP and other IP-based services, applications, and technologies, to reflect changes in technology. The comment cycle ended September 30, 2004. We cannot predict the
outcome of this proceeding on our business.

Local Telecommunications Regulation

In certain locations, we must obtain local franchises, licenses or other operating rights and street opening and construction permits to install, expand
and operate our telecommunications facilities in the public rights-of-way. In some of the areas where we provide services, we pay license or franchise fees based on a percentage of gross revenues. Cities that do not currently impose fees might seek
to impose them in the future, and after the expiration of existing franchises, fees could increase. Under the Telecom Act, state and local governments retain the right to manage the public rights-of-way and to require fair and reasonable
compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way. As noted above, these activities must be consistent with the Telecommunications Act, and may not have the effect
of prohibiting us from providing telecommunications services in any particular local jurisdiction.

If an existing franchise or license
agreement were to be terminated prior to its expiration date and we were forced to remove our facilities from the streets or abandon them in place, our operations in that area would cease, which could have a material adverse effect on our business
as a whole. We believe that the provisions of the Telecommunications Act barring state and local requirements that prohibit or have the effect of prohibiting any entity from providing telecommunications service should be construed to limit any such
action, but there is no guarantee that they would be.

Environmental Regulation

We are subject to a variety of federal, state, and local environmental, safety and health laws, and regulations governing matters such as the generation,
storage, handling, use, and transportation of hazardous materials, the emission and discharge of hazardous materials into the atmosphere, the emission of electromagnetic radiation, the protection of wetlands, historic sites, and endangered species
and the health and safety of employees. We also may be subject to laws requiring the investigation and cleanup of contamination at sites we own or operate or at third-party waste disposal sites. Such laws often impose liability even if the owner or
operator did not know of, or was not responsible for, the contamination. We operate several sites in connection with our operations. Our



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switch site and some customer premise locations are equipped with back-up power sources in the event of an electrical failure. Each of our switch site
locations has battery and diesel fuel powered backup generators, and we use batteries to back-up some of our customer premise equipment. We believe that we currently are in compliance with the relevant federal, state, and local requirements in all
material respects, and we are not aware of any liability or alleged liability at any operated sites or third-party waste disposal sites that would be expected to have a material adverse effect on us.

Franchises

As described above, cable television
systems and local telephone systems generally are constructed and operated under the authority of nonexclusive franchises, granted by local and/or state governmental authorities. Franchises typically contain many conditions, such as:



| |  |  | time limitations on commencement and completion of system construction;
| | - |  | -----------------------------------------------------------------------



| |  |  | customer service standards;
| | - |  | ---------------------------



| |  |  | minimum number of channels; and
| | - |  | -------------------------------



| |  |  | the provision of free service to schools and certain other public institutions.
| | - |  | -------------------------------------------------------------------------------

We believe that the conditions in our franchises are fairly typical for the industry. Our franchises generally provide for the payment of fees to the municipality ranging from 3% to 5% of revenues from telephone and
cable television service, respectively. Our franchises generally have ten to 15 year terms, and we expect our franchises to be renewed by the relevant franchising authority before or upon expiration.

Prior to the scheduled expiration of most franchises, we initiate renewal proceedings with the relevant franchising authorities. The Cable Communications
Policy Act of 1984 provides for an orderly franchise renewal process in which the franchising authorities may not unreasonably deny renewals. If a renewal is withheld and the franchising authority takes over operation of the affected cable system or
awards the franchise to another party, the franchising authority must pay the cable operator the fair market value of the system. The Cable Communications Policy Act of 1984 also established comprehensive renewal procedures requiring
that the renewal application be evaluated on its own merit and not as part of a comparative process with other proposals.

The following
table lists our existing and pending franchises by market, term and expiration date.



|                           |  |              |  |                 |  
|-------------------------- |  | ------------ |  | --------------- | -
|Market Area                |  | Term (years) |  | Expiration Date |  
|Huntsville, AL             |  |              |  |                 |  
|Huntsville, AL             |  | 15           |  | 3/6/2006        | *
|Limestone County, AL       |  | 15           |  | 5/2/2020        |  
|Madison, AL                |  | 15           |  | 10/22/2006      |  
|Madison County, AL         |  | 10           |  | 11/20/2009      |  
|Redstone Arsenal, AL       |  | 10           |  | 2/8/2011        |  
|                           |  |             
|Montgomery, AL             |  |              |  |                 |  
|Autauga County, AL         |  | 15           |  | 10/15/2013      |  
|Maxwell Air Force Base, AL |  | 5            |  | 12/15/2010      |  
|Prattville, AL             |  | 15           |  | 7/7/2013        |  
|Montgomery, AL             |  |              |  | Perpetual       |  
|                           |  |             
|Valley, AL; West Point, GA |  |              |  |                 |  
|Chambers County, AL        |  | 15           |  | 12/15/2012      |  
|Lanett, AL                 |  | 15           |  | 1/20/2013       |  
|Valley, AL                 |  | 15           |  | 1/12/2013       |  
|West Point, GA             |  | 15           |  | 1/19/2013       |  



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|                            |  |              |  |                
|--------------------------- |  | ------------ |  | ---------------
|Market Area                 |  | Term (years) |  | Expiration Date
|Panama City, FL             |  |              |  |                
|Bay County, FL              |  | 15           |  | 1/5/2008       
|Cedar Grove, FL             |  | 15           |  | 6/9/2013       
|Callaway, FL                |  | 10           |  | 9/28/2009      
|Lynn Haven, FL              |  | 20           |  | 5/12/2018      
|Panama City, FL             |  | 20           |  | 3/10/2018      
|Parker, FL                  |  | 10           |  | 12/7/2009      
|Panama City Beach, FL       |  | 15           |  | 12/3/2012      
|                            |  |             
|Pinellas County, FL         |  |              |  |                
|Clearwater, FL              |  | 10           |  | 6/20/2006      
|Dunedin, FL                 |  | 10           |  | 3/20/2007      
|Largo, FL                   |  | 10           |  | 6/9/2008       
|Oldsmar, FL                 |  | 10           |  | 8/19/2007      
|Pinellas County, FL         |  | 10           |  | 1/1/2010       
|Safety Harbor, FL           |  | 10           |  | 4/21/2007      
|Seminole, FL                |  | 10           |  | 6/9/2008       
|St Petersburg, FL           |  | 10           |  | 9/9/2009       
|Tarpon Springs, FL          |  | 10           |  | 8/19/2007      
|                            |  |             
|Augusta, GA                 |  |              |  |                
|Augusta Richmond County, GA |  | 15           |  | 1/20/2013      
|Burnettown, SC              |  | 15           |  | 6/20/2015      
|Columbia County, GA         |  | 11           |  | 11/1/2009      
|                            |  |             
|Columbus, GA                |  |              |  |                
|Columbus, GA                |  | 10           |  | 3/16/2009      
|                            |  |             
|Charleston, SC              |  |              |  |                
|Berkeley County, SC         |  | 15           |  | 11/05/2013     
|Charleston, SC              |  | 15           |  | 4/28/2013      
|Charleston County, SC       |  | 15           |  | 12/15/2013     
|Dorchester County, SC       |  | 15           |  | 7/20/2013      
|Hanahan, SC                 |  | 15           |  | 9/8/2013       
|Lincolnville, SC            |  | 15           |  | 12/2/2013      
|Mount Pleasant, SC          |  | 15           |  | 3/9/2014       
|North Charleston, SC        |  | 15           |  | 5/28/2013      
|Summerville, SC             |  | 15           |  | 8/31/2013      
|                            |  |             
|Knoxville, TN               |  |              |  |                
|Knox County, TN             |  | 10           |  | 6/9/2010       
|Knoxville, TN               |  | 15           |  | 5/18/2015      

---

|* | Currently renegotiating
|- | -----------------------

The Cable Communications Policy
Act of 1984 also prohibits franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable systems service area. This simplifies the application process for
obtaining a new franchise. This process usually takes about six to nine months. While this makes it easier for us to enter new markets, it also makes it easier for competitors to enter the markets in which we currently have franchises.

Employees

At December 31, 2005 we had 1,386
full-time employees. We consider our relations with our employees to be good, and we structure our compensation and benefit plans in order to attract and retain high-caliber



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personnel. We will need to recruit additional employees in order to implement our expansion plan, including general managers for each new city and additional
personnel for installation, sales, customer service and network construction. We recruit from several major industries for employees with skills in video, voice and data technologies.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our Business

We have a history of net losses and may not be profitable in the future.

As of December 31, 2005, we had an accumulated deficit of $528.2 million. We expect to incur net losses for the next several years as our
business matures. Our ability to generate profits and positive cash flow from operating activities will depend in large part on our ability to increase our revenues to offset the costs of operating our network and providing services. If we cannot
achieve operating profitability or positive cash flow from operating activities, our business, financial condition and operating results will be adversely affected.

Failure to obtain additional funding may limit our ability to complete our existing networks or to expand our business.

As of December 31, 2005, we had a working capital deficit of $14.2 million and $528.2 million of accumulated deficit. We currently expect to spend approximately $2.5 million during 2006 to expand
and upgrade our networks in the markets where we currently provide service, including our network in Pinellas County, Florida. Planned capital expenditures in 2006 and thereafter to complete the buildout of our network in Pinellas County, Florida
will have to be funded by cash flow from operations in that market or from additional equity financings. We may not be able to raise proceeds sufficient to complete our buildout or upgrade in Pinellas County. In addition, if financing is available,
it may not be obtained on a timely basis and with acceptable terms. If we fail to obtain sufficient financing, we may be required to discontinue our buildout of Pinellas County, which could have a material adverse effect on our business. See
Item 7Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.

Our substantial indebtedness may adversely affect our cash flows, future financing and flexibility.

As of December 31,
2005, we had approximately $273 million of outstanding indebtedness, including accrued interest, and our stockholders equity was $33.5 million. We pay interest in cash on our credit facilities. We may need to incur additional indebtedness
in the future. Our level of indebtedness could adversely affect our business in a number of ways, including:



| |  |  | we may have to dedicate a significant amount of our available funding and cash flow from operating activities to the payment of interest and the repayment of principal on
outstanding indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | depending on the levels of our outstanding debt and the terms of our debt agreements, we may have trouble obtaining future financing for working capital, capital expenditures,
general corporate and other purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | high levels of indebtedness may limit our flexibility in planning for or reacting to changes in our business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | increases in our outstanding indebtedness and leverage will make us more vulnerable to adverse changes in general economic and industry conditions, as well as to competitive
pressure.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may not be able to make future principal and interest payments on our debt.

Our earnings were not sufficient to cover our fixed charges in each year of the seven-year period ended December 31, 2005. We currently generate
sufficient cash flow from operating activities to service our debt. However, our ability to make future principal and interest payments on our debt depends upon our future



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performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of
which are beyond our control. If we cannot grow and generate sufficient cash flow from operating activities to service our debt payments, we may be required, among other things to:



| |  |  | seek additional financing in the debt or equity markets;
| | - |  | --------------------------------------------------------



| |  |  | refinance or restructure all or a portion of our debt;
| | - |  | ------------------------------------------------------



| |  |  | sell selected assets; or
| | - |  | ------------------------



| |  |  | reduce or delay planned capital expenditures.
| | - |  | ---------------------------------------------

These
measures may not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets may not be available on commercially reasonable terms, or at all.

Restrictions on our business imposed by our debt agreements could limit our growth or activities.

Our credit facilities place operating and financial restrictions on us and our subsidiaries. These restrictions affect, and any restrictions created by
future financings, will affect our and our subsidiaries ability to, among other things:



| |  |  | incur additional debt;
| | - |  | ----------------------



| |  |  | create or incur liens on our assets;
| | - |  | ------------------------------------



| |  |  | make certain investments;
| | - |  | -------------------------



| |  |  | use the proceeds from the sale of assets;
| | - |  | -----------------------------------------



| |  |  | pay cash dividends on or redeem or repurchase our capital stock;
| | - |  | ----------------------------------------------------------------



| |  |  | utilize excess liquidity except for debt reduction;
| | - |  | ---------------------------------------------------



| |  |  | engage in potential mergers and acquisitions, sale/leaseback transactions or other fundamental changes in the nature of our business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | make capital expenditures.
| | - |  | --------------------------

In addition, our credit
facilities require us to maintain specified financial ratios, such as debt to EBITDA (earnings before income, taxes, depreciation and amortization) and EBITDA to cash interest. These limitations may affect our ability to finance our future
operations or to engage in other business activities that may be in our interest. If we violate any of these restrictions or any restrictions created by future financings, we could be in default under our agreements and be required to repay our debt
immediately rather than at scheduled maturity.

The demand for our bundled broadband communications services may be lower than we expect.

The demand for video, voice and data services, either alone or as part of a bundle, cannot readily be determined. Our business could be
adversely affected if demand for bundled broadband communications services is materially lower than we expect. If the markets for the services we offer, including voice and data services, fail to develop, grow more slowly than anticipated or become
saturated with competitors, our ability to generate revenue will suffer.

Competition from other providers of video services could adversely affect our
results of operations.

To be successful, we will need to retain our existing video customers and attract video customers away from our
competitors. Some of our competitors have advantages over us, such as long-standing customer relationships, larger networks, and greater experience, resources, marketing capabilities and name recognition. In addition, a continuing trend toward
business combinations and alliances in the cable television area and in the telecommunications industry as a whole may create significant new competitors for us. In providing video



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service, we currently compete with Bright House, Charter, Comcast, Mediacom and Time Warner. We also compete with satellite television providers, including
DirecTV and Echostar. Legislation now allows satellite television providers to offer local broadcast television stations. This may reduce our current advantage over satellite television providers and our ability to attract and maintain customers.

The providers of video services in our markets have, from time to time, adopted promotional discounts. We expect these promotional
discounts in our markets to continue into the foreseeable future and additional promotional discounts may be adopted. We may need to offer additional promotional discounts to be competitive, which could have an adverse impact on our revenues. In
addition, incumbent local phone companies may market video services in their service areas to provide a bundle of services. BellSouth Corporation, or BellSouth, has entered into a strategic marketing alliance with DirecTV to jointly market voice and
video services. As telephone service providers offer video services in our markets, it could increase our competition for our video and voice services and for our bundled services.

Competition from other providers of voice services could adversely affect our results of operations.

In providing local and long-distance telephone services, we compete with the incumbent local phone company in each of our markets. We are not the first provider of telephone services in most of our markets and we therefore must attract
customers away from other telephone companies. BellSouth and Verizon are the primary incumbent local exchange carriers in our targeted region. They offer both local and long-distance services in our markets and are particularly strong competitors.
In the future, we may face other competitors, such as cable television service operators who have announced their intention to offer telephone services with Internet-based telephony. If cable operators offer voice services in our markets, it could
increase competition for our bundled services.

The past several years have seen the emergence in our markets of carriers relying on the
so-called unbundled network element platform obtained from incumbent local exchange carriers under Section 251(c)(3) of the Communications Act of 1934 and the FCCs implementing regulations. Some of these carriers have been successful in
capturing market share in a relatively short period of time. In the FCCs Triennial Review Order, the framework was established whereby the obligations of incumbent local exchange carriers to continue to make available the unbundled network
element platform may be eliminated in the future subject to certain conditions being satisfied and certified by state public service commissions. It is difficult at this time to determine the extent to which competition from unbundled network
element platform providers in our markets may intensify or diminish and it is impossible to predict, in the event that the unbundled network element platform is no longer available in certain markets in the future, whether and which unbundled
network element platform-based carriers will successfully transition to other means of serving their local exchange customers.

Competition from other
providers of data services could adversely affect our results of operations.

Providing data services is a rapidly growing business and
competition is increasing in each of our markets. Some of our competitors have advantages over us, such as greater experience, resources, marketing capabilities and name recognition. In providing data services, we compete with:



| |  |  | traditional dial-up Internet service providers;
| | - |  | -----------------------------------------------



| |  |  | incumbent local exchange carriers that provide dial-up and digital subscriber line (DSL) services;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | providers of satellite-based Internet access services;
| | - |  | ------------------------------------------------------



| |  |  | competitive local exchange carriers; and
| | - |  | ----------------------------------------



| |  |  | cable television companies.
| | - |  | ---------------------------

In addition, some providers
of data services have reduced prices and engaged in aggressive promotional activities. We expect these price reductions and promotional activities to continue into the foreseeable future and additional price reductions may be adopted. We may need to
lower our prices for data services to remain competitive.



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Our programming costs are increasing, which could reduce our gross profit.

Programming has been our largest single operating expense and we expect this to continue. In recent years, the cable industry has experienced rapid
increases in the cost of programming, particularly sports programming. Our relatively small base of subscribers limits our ability to negotiate lower programming costs. We expect these increases to continue, and we may not be able to pass our
programming cost increases on to our customers. In addition, as we increase the channel capacity of our systems and add programming to our expanded basic and digital programming tiers, we may face additional market constraints on our ability to pass
programming costs on to our customers. Any inability to pass programming cost increases on to our customers would have an adverse impact on our gross profit.

Programming exclusivity in favor of our competitors could adversely affect the demand for our video services.

We obtain our
programming by entering into contracts or arrangements with programming suppliers. A programming supplier could enter into an exclusive arrangement with one of our video competitors that could create a competitive advantage for that competitor by
restricting our access to this programming. If our ability to offer popular programming on our cable television systems is restricted by exclusive arrangements between our competitors and programming suppliers, the demand for our video services may
be adversely affected and our cost to obtain programming may increase.

The rates we pay for pole attachments may increase significantly.

The rates we must pay utility companies for space on their utility poles is the subject of frequent disputes. If the rates we pay for
pole attachments were to increase significantly or unexpectedly, it would cause our network to be more expensive to operate. It could also place us in a competitive disadvantage to video and telecommunications service providers who do not require,
or who are less dependent upon, pole attachments, such as satellite providers and wireless voice service providers. See Legislation and RegulationFederal RegulationRegulation of Cable ServicesPole Attachments for more
information.

Loss of interconnection arrangements could impair our telephone service.

We rely on other companies to connect our local telephone customers with customers of other local telephone providers. We presently have access to
BellSouths telephone network under a nine-state interconnection agreement, which expires in June 2007. We have access to Verizons telephone network in Florida under an interconnection agreement covering Florida, which expired in
August 2004. In accordance with provisions of the agreement, it will remain in full force until cancelled by either party. We are currently in negotiations with Verizon to renew our interconnection agreement. If either interconnection
agreement is not renewed or terminated, we will have to negotiate another interconnection agreement with the respective carrier. The renegotiated agreement could be on terms less favorable than our current terms.

It is generally expected that the Telecommunications Act of 1996 will continue to undergo considerable interpretation and implementation, which could
have a negative impact on our interconnection agreements with BellSouth and Verizon. It is also possible that further amendments to the Communications Act of 1934 may be enacted which could have a negative impact on our interconnection agreements
with BellSouth and Verizon. The contractual arrangements for interconnection and access to unbundled network elements with incumbent carriers generally contain provisions for incorporation of changes in governing law. Thus, future FCC, state public
service commission and/or court decisions may negatively impact the rates, terms and conditions of the interconnection services we have obtained and may seek to obtain under these agreements, which could adversely affect our business, financial
condition or results of operations. Our ability to compete successfully in the provision of services will depend on the nature and timing of any such legislative changes, regulations and interpretations and whether they are favorable to us or to our
competitors. See Legislation and Regulation for more information.



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We could be hurt by future interpretation or implementation of regulations.

The current communications and cable legislation is complex and in many areas sets forth policy objectives to be implemented by regulation at the federal,
state, and local levels. It is generally expected that the Communications Act of 1934, as amended, the Telecommunications Act of 1996 and implementing regulations and decisions, as well as applicable state laws and regulations, will continue to
undergo considerable interpretation and implementation. Regulations that enhance the ability of certain classes of our competitors, or interpretation of existing regulations to the same effect, would adversely affect our competitive position. It is
also possible that further amendments to the Communications Act of 1934 and state statutes to which we or our competitors are subject may be enacted. Our ability to compete successfully will depend on the nature and timing of any such legislative
changes, regulations, and interpretations and whether they are favorable to us or to our competitors. See Legislation and Regulation for more information.

We operate our network under franchises that are subject to non-renewal or termination.

Our network
generally operates pursuant to franchises, permits or licenses typically granted by a municipality or other state or local government controlling the public rights-of-way. Often, franchises are terminable if the franchisee fails to comply with
material terms of the franchise order or the local franchise authoritys regulations. Although none of our existing franchise or license agreements have been terminated, and we have received no threat of such a termination, one or more local
authorities may attempt to take such action. We may not prevail in any judicial or regulatory proceeding to resolve such a dispute.

Further, franchises generally have fixed terms and must be renewed periodically. Local franchising authorities may resist granting a renewal if they consider either past performance or the prospective operating proposal to be inadequate. In
a number of jurisdictions, local authorities have attempted to impose rights-of-way fees on providers that have been challenged as violating federal law. A number of FCC and judicial decisions have addressed the issues posed by the imposition of
rights-of-way fees on competitive local exchange carriers and on video distributors. To date, the state of the law is uncertain and may remain so for some time. We may become subject to future obligations to pay local rights-of-way fees which are
excessive or discriminatory.

The local franchising authorities can grant franchises to competitors who may build networks in our market
areas. Local franchise authorities have the ability to impose regulatory constraints or requirements on our business, including those that could materially increase our expenses. In the past, local franchise authorities have imposed regulatory
constraints, by local ordinance or as part of the process of granting or renewing a franchise, on the construction of our network. They have also imposed requirements on the level of customer service we provide, as well as other requirements. The
local franchise authorities in our markets may also impose regulatory constraints or requirements, which could increase our expenses in operating our business.

We may not be able to obtain telephone numbers for new voice customers in a timely manner.

In providing voice services, we
rely on access to numbering resources in order to provide our customers with telephone numbers. A shortage of or a delay in obtaining new numbers from numbering administrators, as has sometimes been the case for local exchange carriers in the recent
past, could adversely affect our ability to expand into new markets or enlarge our market share in existing markets.

Substantially all of our voice
traffic passes through one of our two switches located in West Point, Georgia and nearby Huguley, Alabama, and these switches may fail to operate.

Substantially all of our voice traffic passes through one of our two switches located in West Point, Georgia and nearby Huguley, Alabama. If one or both of our switches were to fail to operate, a portion or all of our
customers would not be able to access our voice services, which likely would damage our relationship with our customers and could adversely affect our business.



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We may encounter difficulties in implementing and developing new technologies.

We have invested in advanced technology platforms that support advanced communications services and multiple emerging interactive services, such as
video-on-demand, subscriber video-on-demand, digital video recording, interactive television, IP Centrex services and passive optical network services. We have also invested in our new enterprise management system. However, existing and future
technological implementations and developments may allow new competitors to emerge, reduce our networks competitiveness or require expensive and time-consuming upgrades or additional equipment, which may also require the write-down of existing
equipment. In addition, we may be required to select in advance one technology over another and may not choose the technology that is the most economic, efficient or attractive to customers. We may also encounter difficulties in implementing new
technologies, products and services and may encounter disruptions in service as a result.

We may encounter difficulties expanding into additional
markets.

To expand into additional cities we will have to obtain pole attachment agreements, construction permits, telephone numbers,
franchises and other regulatory approvals. Delays in entering into pole attachment agreements, receiving the necessary construction permits and conducting the construction itself have adversely affected our schedule in the past and could do so again
in the future. Difficulty in obtaining numbering resources may also adversely affect our ability to expand into new markets. Further, as we recently experienced in Louisville, we may face legal or similar resistance from competitors who are already
in these markets. See Item 3Legal Proceedings. For example, a competitor may oppose or delay our franchise application or our request for pole attachment space. These difficulties could significantly harm or delay the
development of our business in new markets.

Future acquisitions and joint ventures could strain our business and resources.

If we acquire existing companies or networks or enter into joint ventures, we may:



| |  |  | miscalculate the value of the acquired company or joint venture;
| | - |  | ----------------------------------------------------------------



| |  |  | divert resources and management time;
| | - |  | -------------------------------------



| |  |  | experience difficulties in integrating the acquired business or joint venture with our operations;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | experience relationship issues, such as with customers, employees and suppliers, as a result of changes in management;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | incur additional liabilities or obligations as a result of the acquisition or joint venture; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | assume additional financial burdens or dilution in connection with the transaction.
| | - |  | -----------------------------------------------------------------------------------

Additionally, ongoing consolidation in our industry may be reducing the number of attractive acquisition targets.

We
depend on the services of key personnel to implement our strategy. If we lose the services of our key personnel or are unable to attract and retain other qualified management personnel, we may be unable to implement our strategy.

Our business is currently managed by a small number of key management and operating personnel. We do not have any employment agreements with, nor do we
maintain key man life insurance policies on, these or any other employees. The loss of members of our key management and certain other members of our operating personnel could adversely affect our business.

Our ability to manage our anticipated growth depends on our ability to identify, hire and retain additional qualified management personnel. While we are
able to offer competitive compensation to prospective employees, we may still be unsuccessful in attracting and retaining personnel which could affect our ability to grow effectively and adversely affect our business.



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Since our business is concentrated in specific geographic locations, our business could be hurt by a depressed economy
and natural disasters in these areas.

We provide our services to areas in Alabama, Florida, Georgia, South Carolina and Tennessee,
which are all in the southeastern United States, as well as California. A stagnant or depressed economy in the United States and the southeastern United States in particular could affect all of our markets, and adversely affect our business and
results of operations.

Our success depends on the efficient and uninterrupted operation of our communications services. Our network is
attached to poles and other structures in our service areas, and our ability to provide service depends on the availability of electric power. A tornado, hurricane, flood, mudslide or other natural catastrophe in one of these areas could damage our
network, interrupt our service and harm our business in the affected area. In addition, many of our markets are close together, and a single natural catastrophe could damage our network in more than one market.

Risks Related to Relationships with Stockholders, Affiliates and Related Parties

A small number of stockholders control a significant portion of our stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of January 31, 2006, Silver Point Capital, or Silver Point, our largest stockholder, owned approximately 10% of our outstanding
voting stock. Additionally, private equity funds affiliated with Whitney & Co., LLC, or Whitney, and The Blackstone Group L.P., or Blackstone, owned approximately 6.6% and 5.0% of our outstanding voting stock, respectively. Further,
approximately 5.8% of our outstanding voting stock was owned by Campbell B. Lanier, III, the chairman of our board of directors, and members of Mr. Laniers immediate family and 8.9% of our voting stock was owned or controlled by Donald W.
Burton, a member of our board. As a result, these stockholders have significant voting power with respect to the ability to:



| |  |  | authorize additional shares of capital stock or otherwise amend our certificate of incorporation or bylaws;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | elect our directors; or
| | - |  | -----------------------



| |  |  | effect a merger, sale of assets or other corporate transaction.
| | - |  | ---------------------------------------------------------------

The extent of ownership by these stockholders may also discourage a potential acquirer from making an offer to acquire us. This could reduce the value of our stock.

Some of our major stockholders own stock in our competitors and may have conflicts of interest.

Some
of our major stockholders, including Silver Point, Whitney, Blackstone, Mr. Lanier and Mr. Burton, own or in the future may own interests in companies that may compete with us. When the interest of one of our competitors differs from ours,
these stockholders may support our competitor or take other actions that could adversely affect our interests.

Risks Related to Our Common Stock

If we issue more stock in future offerings, the percentage of our stock that our stockholders own will be diluted.

As of January 31, 2006, we had 24,255,225 shares of common stock outstanding. We also had outstanding on that date options to purchase 2,927,083
shares of common stock, warrants to purchase 1,074,221 shares of common stock and 1,965,030 shares of our Series AA preferred stock, each share of which is currently convertible into five shares of our common stock. Our authorized capital stock
includes 200,000,000 shares of common stock and 199,000,000 shares of preferred stock, which our board of directors has the authority to issue without further stockholder action. Future stock issuances also will reduce the percentage ownership of
our current stockholders.



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Our board of directors has the authority to issue, without stockholder approval, shares of preferred
stock with rights and preferences senior to the rights and preferences of the common stock. As a result, our board of directors could issue shares of preferred stock with the right to receive dividends and the assets of the company upon liquidation
prior to the holders of the common stock.

The value of our stock could be hurt by substantial price fluctuations.

The value of our common stock could be subject to sudden and material increases and decreases. The value of our stock could fluctuate in response to:



| |  |  | our quarterly operating results;
| | - |  | --------------------------------



| |  |  | changes in our business;
| | - |  | ------------------------



| |  |  | changes in the markets perception of our bundled services;
| | - |  | -----------------------------------------------------------



| |  |  | changes in the businesses or market perceptions of our competitors; and
| | - |  | -----------------------------------------------------------------------



| |  |  | changes in general market or economic conditions.
| | - |  | -------------------------------------------------

In
addition, the stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the value of securities of many companies. These changes often appear to occur without regard to specific operating
performance. The value of our common stock could increase or decrease based on change of this type. These fluctuations could materially reduce the value of our stock. Fluctuations in the value of our stock will also affect the value of our
outstanding warrants and options, which may adversely affect shareholders equity, net income or both.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

Our primary assets consist of voice,
video and data distribution plant and equipment, including voice switching equipment, data receiving equipment, data decoding equipment, data encoding equipment, headend reception facilities, distribution systems and customer premise equipment.

Our plant and related equipment are generally attached to utility poles under pole rental agreements with public electric utilities,
electric cooperative utilities, municipal electric utilities and telephone companies. In certain locations our plant is buried underground. We own or lease real property for signal reception sites. Our headend locations are located on owned or
leased parcels of land.

We own or lease the real property and buildings for our market administrative offices, customer call center, data
center, and our corporate offices.

The physical components of our broadband systems require maintenance as well as periodic upgrades to
support the new services and products we may introduce. We believe that our properties are generally in good operating condition and are suitable for our business operations.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

In September 2000, the City
of Louisville, Kentucky granted Knology of Louisville, Inc., our subsidiary, a cable television franchise. On November 2, 2000, Insight filed a complaint against the City of Louisville in Kentucky Circuit Court in Jefferson County, Kentucky
claiming that our franchise was more favorable than Insights franchise. In April 2001 the City of Louisville moved for summary judgment in Kentucky Circuit Court against Insight. In March 2002, the Kentucky Circuit Court ruled that
Insights complaint did not have merit and the Kentucky Circuit Court granted the City of Louisvilles motion to dismiss Insights complaint.



36



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On November 8, 2000, we filed an action in the U.S. District Court for the Western District of
Kentucky against Insight seeking monetary damages, declaratory and injunctive relief from Insight and the City arising out of Insights complaint and the suspension of our franchise. In June 2003 the U.S. District Court ruled on the
parties cross motions for summary judgment, resolving certain claims and setting others down for trial. The U.S. District Court granted our motion for summary judgment based on causation on certain claims. In August 2003, the U.S.
District Court granted Insights motion for an immediate interlocutory appeal on certain issues, which was accepted in October 2003 by the U.S. Court of Appeals for the Sixth Circuit. On December 29, 2004, the Sixth Circuit
reversed the U.S. District Courts decision denying InsightsNoerr-Pennington immunity and granting summary judgment to Knology on its First Amendment Section 1983 claim.

On March 2, 2005, the Sixth Circuit denied Knologys Petition for Rehearing. In light of the rulings by the Sixth Circuit, on June 24,
2005 Knology Moved to Dismiss the Civil Action with each party to bear its own costs and fees to which Insight objected. On August 19, 2005, the United States District Court granted Knologys Motion to Dismiss the Civil Action with
prejudice with each party to bear its own costs and fees. On August 25, 2005, Insight appealed the District Courts ruling to the Sixth Circuit of Appeals where the matter has been fully briefed and where the issue is currently
pending. The timing and ultimate result of the action is uncertain.

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



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



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##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------

Market Information

Our common stock has traded on the Nasdaq National Market under the symbol KNOL since
December 18, 2003. The following table sets forth the high and low sales prices as reported on the Nasdaq National Market for the period from January 1, 2004 through December 31, 2005:



|               |  |      |       |     |   |     
|-------------- |  | ---- | ----- | --- | - | ----
|               |  | High |       | Low
|2005           |  |      |       |     |   |     
|Fourth Quarter |  | $    | 4.00  |     | $ | 1.72
|Third Quarter  |  | $    | 2.85  |     | $ | 1.92
|Second Quarter |  | $    | 2.29  |     | $ | 1.63
|First Quarter  |  | $    | 3.76  |     | $ | 2.10
|               |  |     
|2004           |  |      |       |     |   |     
|Fourth Quarter |  | $    | 4.25  |     | $ | 2.63
|Third Quarter  |  | $    | 5.35  |     | $ | 3.24
|Second Quarter |  | $    | 8.99  |     | $ | 4.91
|First Quarter  |  | $    | 10.86 |     | $ | 6.13

Holders

As of January 31, 2006, there were approximately 2,100 shareholders of record of our common stock (excluding beneficial owners of shares registered in nominee or street name).

Dividends

We have never declared or paid any cash
dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. It is the current policy of our board of directors to retain earnings to finance the expansion of our operations. Future
declaration and payment of dividends, if any, will be determined based on the then-current conditions, including our earnings, operations, capital requirements, financial condition, and other factors our board of directors deems relevant. We accrue
dividends on our Series AA preferred stock at an 8% annual rate, which may be paid in cash or additional shares of Series AA preferred stock. However, pursuant to the restrictions of our credit facilities, we are prohibited from paying
dividends in cash other than cash in lieu of fractional shares. During the year ended December 31, 2005, 58,742 shares of Series AA preferred stock were issued as dividends.



38



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The selected financial
data set forth below should be read in conjunction with the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations, our consolidated financial statements and the related notes, and
other financial data included elsewhere in this Annual Report.



|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | -------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | ---
|                                                                                                                           |  | Year Ended December 31, |          
|                                                                                                                           |  | 2001                    |           |   | 2002 |   |          | 2003 |  |   | 2004    |   |  | 2005 |        
|                                                                                                                           |  | (in thousands)          |          
|Statement of Operations Data:                                                                                              |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Operating revenues                                                                                                         |  | $                       | 106,189   |   |      | $ | 141,866  |      |  | $ | 172,938 |   |  | $    | 211,458 |   |  | $ | 230,857 |    
|Operating expenses:                                                                                                        |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Cost of services                                                                                                           |  |                         | 32,469    |   |      |   | 41,007   |      |  |   | 46,525  |   |  |      | 60,829  |   |  |   | 66,022  |    
|Selling, operations and administrative                                                                                     |  |                         | 73,322    |   |      |   | 79,837   |      |  |   | 93,366  |   |  |      | 117,580 |   |  |   | 117,123 |    
|Depreciation and amortization                                                                                              |  |                         | 78,954    |   |      |   | 80,533   |      |  |   | 77,806  |   |  |      | 74,163  |   |  |   | 74,490  |    
|(Gain) loss on debt extinguishment                                                                                         |  |                         | (31,875   | ) |      |   | 0        |      |  |   | 0       |   |  |      | 0       |   |  |   | 544     |    
|Gain on debt reorganization                                                                                                |  |                         | 0         |   |      |   | (109,804 | )    |  |   | 0       |   |  |      | 0       |   |  |   | 0       |    
|Reorganization professional fees                                                                                           |  |                         | 0         |   |      |   | 3,842    |      |  |   | 84      |   |  |      | 0       |   |  |   | 0       |    
|Capital markets activity                                                                                                   |  |                         | 0         |   |      |   | 0        |      |  |   | 0       |   |  |      | 880     |   |  |   | 62      |    
|Asset impairment and severence                                                                                             |  |                         | 0         |   |      |   | 9,946    |      |  |   | 0       |   |  |      | 0       |   |  |   | 334     |    
|Non-cash stock option compensation                                                                                         |  |                         | 0         |   |      |   | 3,266    |      |  |   | 1,833   |   |  |      | 3,625   |   |  |   | 2,101   |    
|Litigation fees                                                                                                            |  |                         | 0         |   |      |   | 1,244    |      |  |   | 907     |   |  |      | 377     |   |  |   | 46      |    
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Total operating expenses                                                                                                   |  |                         | 155,870   |   |      |   | 109,871  |      |  |   | 220,571 |   |  |      | 257,454 |   |  |   | 260,722 |    
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Operating (loss) income                                                                                                    |  |                         | (48,681   | ) |      |   | 31,995   |      |  |   | (47,633 | ) |  |      | (45,996 | ) |  |   | (29,865 | )  
|Interest (expense), net                                                                                                    |  |                         | (40,069   | ) |      |   | (35,871  | )    |  |   | (28,796 | ) |  |      | (30,342 | ) |  |   | (33,378 | )  
|Gain on adjustments of warrants to market                                                                                  |  |                         | 0         |   |      |   | 2,865    |      |  |   | 929     |   |  |      | 535     |   |  |   | 37      |    
|Other income (expense), net                                                                                                |  |                         | (834      | ) |      |   | (321     | )    |  |   | (12,288 | ) |  |      | 133     |   |  |   | (12     | )  
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Loss before minority interest, income taxes, extraordinary item, and cumulative effect of a change in accounting principle |  |                         | (87,584   | ) |      |   | (1,332   | )    |  |   | (87,788 | ) |  |      | (75,670 | ) |  |   | (63,218 | )  
|Income from discontinued operations                                                                                        |  |                         | 0         |   |      |   | 0        |      |  |   | 0       |   |  |      | 106     |   |  |   | 8,404   | (1)
|Income tax (provision) benefit                                                                                             |  |                         | (2,789    | ) |      |   | 0        |      |  |   | 0       |   |  |      | 0       |   |  |   | 0       |    
|Cumulative effect of a benefit change in accounting principle                                                              |  |                         | 0         |   |      |   | (1,294   | )    |  |   | 0       |   |  |      | 0       |   |  |   | 0       |    
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Net loss                                                                                                                   |  |                         | (90,373   | ) |      |   | (2,626   | )    |  |   | (87,788 | ) |  |      | (75,564 | ) |  |   | (54,814 | )  
|Preferred stock dividends                                                                                                  |  |                         | 0         |   |      |   | 0        |      |  |   | 0       |   |  |      | 0       |   |  |   | 588     |    
|Non-cash distribution to preferred stockholders                                                                            |  |                         | (36,579   | ) |      |   | 0        |      |  |   | 0       |   |  |      | 0       |   |  |   | 0       |    
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Net loss attributable to common stockholders                                                                               |  | $                       | (126,952  | ) |      | $ | (2,626   | )    |  | $ | (87,788 | ) |  | $    | (75,564 | ) |  | $ | (55,402 | )  
|                                                                                                                           |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Basic and diluted net loss per share attributable to common stockholders                                                   |  | $                       | (2,628.84 | ) |      | $ | (52.20   | )    |  | $ | (5.17   | ) |  | $    | (3.19   | ) |  | $ | (2.33   | )  
|Other Financial Data:                                                                                                      |  |                         |           |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |    
|Capital expenditures                                                                                                       |  | $                       | 86,696    |   |      | $ | 44,446   |      |  | $ | 35,533  |   |  | $    | 63,592  |   |  | $ | 31,613  |    
|Capitalized interest                                                                                                       |  |                         | 2,430     |   |      |   | 0        |      |  |   | 0       |   |  |      | 0       |   |  |   | 0       |    
|Cash provided by (used in) operating activities                                                                            |  |                         | (13,251   | ) |      |   | (10,318  | )    |  |   | 29,512  |   |  |      | 22,263  |   |  |   | 18,818  |    
|Cash used in investing activities                                                                                          |  |                         | (89,117   | ) |      |   | (44,847  | )    |  |   | (96,993 | ) |  |      | (40,941 | ) |  |   | (5,555  | )  
|Cash provided by (used in) financing activities                                                                            |  |                         | 119,814   |   |      |   | 39,378   |      |  |   | 45,383  |   |  |      | 4,185   |   |  |   | (7,162  | )  

---

|(1) | Includes $8,320 gain on the disposal of discontinued operations.
|--- | ----------------------------------------------------------------



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|                                           |  |                |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|------------------------------------------ |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                           |  | December 31,   |         
|                                           |  | 2001           |          |   | 2002 |   |          | 2003 |  |   | 2004     |   |  | 2005 |         
|                                           |  | (in thousands) |         
|Balance Sheet Data:                        |  |                |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net working capital                        |  | $              | (617     | ) |      | $ | 24,000   |      |  | $ | 42,935   |   |  | $    | 3,201    |   |  | $ | (14,235  | )
|Property and equipment, net                |  |                | 400,851  |   |      |   | 357,182  |      |  |   | 336,060  |   |  |      | 326,499  |   |  |   | 285,638  |  
|Total assets                               |  |                | 516,540  |   |      |   | 471,291  |      |  |   | 463,712  |   |  |      | 418,587  |   |  |   | 375,534  |  
|Long-term debt, including accrued interest |  |                | 370,999  |   |      |   | 250,916  |      |  |   | 271,317  |   |  |      | 286,888  |   |  |   | 271,167  |  
|Total liabilities                          |  |                | 423,416  |   |      |   | 284,899  |      |  |   | 312,819  |   |  |      | 333,924  |   |  |   | 322,172  |  
|Accumulated deficit                        |  |                | (307,442 | ) |      |   | (310,068 | )    |  |   | (397,853 | ) |  |      | (473,420 | ) |  |   | (528,234 | )
|Total stockholders equity                 |  |                | 88,398   |   |      |   | 184,531  |      |  |   | 150,893  |   |  |      | 86,269   |   |  |   | 33,511   |  



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

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

We have built our business through:



| |  |  | acquisitions of other cable related assets and subsidiaries, networks and franchises;
| | - |  | -------------------------------------------------------------------------------------



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



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



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

The following discussion includes details, highlights and insight into our consolidated financial condition and results of operations, including recent
business developments, critical accounting policies, estimates used in preparing the financial statements and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in
conjunction with our Selected Financial Data and our financial statements and related notes elsewhere in this annual report.

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

We completed several key transactions during 2005, to improve the financial condition and liquidity of the company. These transactions include the
following:



| |  |  | We issued and sold 2,000,000 shares of a newly created series of preferred stock, the Series AA convertible preferred stock, at $10.00 per share, for aggregate
gross proceeds of $20 million. 920,000
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | shares of a the Series AA preferred stock were issued and sold in May 2005 in a private offering to certain new and existing investors, with the remaining
shares issued and sold in October 2005 through a rights offering to existing stockholders. The Series AA preferred stock provides for a cumulative dividend of 8% per annum, which we pay in additional shares of Series AA preferred stock, and we
issued 58,742 additional shares of the Series AA preferred stock in 2005. On November 1, 2005, we used the net proceeds from the rights offering to pay down our first lien indebtedness.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In September 2005, we completed the sale of our cable assets in Cerritos, California to WaveDivision Holdings, LLC for $10 million in cash. The net proceeds from the sale were
used for general corporate purposes, including the funding of success-based capital expenditures and operating expenses. We had acquired the Cerritos cable system in December 2003 from Verizon Media Ventures Inc. in conjunction with our
acquisition of Verizon Medias Pinellas County, Florida operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2005, we entered into a first lien credit agreement and second lien credit agreement providing us with aggregate cash proceeds of $280 million. Credit Suisse acted as
administrative agent and sole lead arranger. We used these proceeds, together with cash on hand, to repay all amounts outstanding under our credit facilities with Wachovia Bank, National Association and CoBank, ACB and to redeem our 12% senior notes
due 2009, which were redeemed on July 29, 2005. Both credit facilities are guaranteed by all of our subsidiaries. The credit facilities are also secured by first and second liens on all of our assets and the assets of our guarantor
subsidiaries.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which require us to make estimates and assumptions. We believe that, of our
significant accounting policies described in Note 2 to our audited consolidated financial statements included in Item 8 of this annual report, the following may involve a higher degree of judgment and complexity.

Revenue Recognition.We account for the revenue, costs and expense related to residential cable services (including video, voice, data and other
services) as the related services are performed in accordance with SFAS No. 51, Financial Reporting by Cable Television Companies. Installation revenue for residential cable services is recognized to the extent of direct selling costs incurred.
Direct selling costs have exceeded installation revenue in all reported periods. Credit risk is managed by disconnecting services to customers who are delinquent.

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

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

Allowance for Doubtful Accounts. We use estimates to
determine our allowance for bad debts. These estimates are based on historical collection experience, current trends, credit policy and a percentage of our delinquent customer accounts receivable.

Capitalization of labor and overhead costs. Our business is capital intensive, and a large portion of the capital we have raised to date has been
spent on activities associated with building, extending, upgrading and



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##### Table of Contents

enhancing our network. As of December 31, 2005 and 2004, the net carrying amount of our property, plant and equipment was approximately
$285.6 million, 76% of total assets, and $326.5 million, 78% of total assets, respectively. Total capital expenditures for the years ended December 31, 2005, 2004 and 2003 were approximately $31.6 million, $63.6 million and
$35.5 million, respectively.

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

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

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

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

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



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



| |  |  | significant changes in the manner in which we use our assets or significant changes in our overall business strategy; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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

We
adopted SFAS No. 142 and perform a goodwill impairment test annually in accordance with SFAS No. 142 on January 1. Based on the results of the test, we recorded no impairment loss to our goodwill as of January 1, 2004, 2005 and
2006.

Significant and Subjective Estimates. The following discussion and analysis of our results of operations and financial
condition is based upon our consolidated financial statements, which have been prepared in accordance



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with GAAP in the United States. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and contingent liabilities. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for us to judge the
application. We base our judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See our consolidated financial statements and related notes thereto included elsewhere in this
annual report, which contain accounting policies and other disclosures required by GAAP.

Homes Passed and Connections

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

Revenues

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



| |  |  | Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from pay-per-view movies,
fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 41.6%, 46.2% and 44.6% of our consolidated revenues for the years ended December 31,
2003, 2004 and 2005, respectively. Video revenues as a percentage of our total revenues increased significantly in 2004 as a result of the acquisition of video-only connections in Cerritos, California and video and data connections in Pinellas
County, Florida.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 40.5%, 34.3% and 33.6% of our consolidated revenues for the years ended December 31, 2003, 2004 and 2005, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues and other revenues. Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Other revenues result principally
from broadband carrier services. These combined revenues accounted for approximately 17.9%, 19.5% and 21.8% of our consolidated revenues for the years ended December 31, 2002, 2003 and 2004, respectively. Providing data services is a rapidly
growing business and competition is increasing in each of our markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 BellSouth, Bright House, Charter, Comcast, Mediacom and Time Warner. We also compete with satellite
television providers such as DirecTV and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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 cost of services, selling, operations and administrative expenses and
depreciation and amortization.

Costs of services include:



| |  |  | Video cost of services. Video cost of services consists primarily of monthly fees to the NCTC 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 46.1%, 49.6% and 49.7% for the years ended December 31, 2003, 2004 and 2005, respectively. We have entered into contracts with various
entities to provide programming to be aired on our network. We pay a monthly fee for these programming services, generally based on the average number of subscribers to the program, although some fees are adjusted based on the total number of
subscribers to the system and/or the system penetration percentage. Since programming cost is partially based on numbers of subscribers, it will increase as we add more subscribers. It will also increase as costs per channel increase over time. We
paid approximately $48.6 million in programming fees under programming contracts during 2005.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice cost of services. Voice cost of services consists primarily of transport cost and network access fees. The voice cost of services as a percentage of voice revenues was
approximately 16.2%, 14.7% and 16.6% for the years ended December 31, 2003, 2004 and 2005, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data and other costs of services. Data and other costs of services consist primarily of transport cost and network access fees. The data and other costs of services as a
percentage of data and other revenue were 6.5%, 4.2% and 3.9% for the years ended December 31, 2003, 2004 and 2005, respectively.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, general
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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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



| |  |  | Service and installation expenses. Service and installation expenses include payroll and departmental cost 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

The following table sets forth financial data as a percentage of operating
revenues for the years ended December 31, 2003, 2004 and 2005.



|                                                                                |  |                        |    |  |      |    |  |      |   
|------------------------------------------------------------------------------- |  | ---------------------- | -- |  | ---- | -- |  | ---- | --
|                                                                                |  | Year EndedDecember 31, |   
|                                                                                |  | 2003                   |    |  | 2004 |    |  | 2005 |   
|Operating revenues:                                                             |  |                        |    |  |      |    |  |      |   
|Video                                                                           |  | 42                     | %  |  | 46   | %  |  | 44   | % 
|Voice                                                                           |  | 40                     |    |  | 34   |    |  | 34   |   
|Data                                                                            |  | 18                     |    |  | 20   |    |  | 22   |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total operating revenues                                                        |  | 100                    |    |  | 100  |    |  | 100  |   
|Operating expenses:                                                             |  |                        |    |  |      |    |  |      |   
|Cost of services                                                                |  | 27                     |    |  | 29   |    |  | 29   |   
|Selling, operating and administrative expenses                                  |  | 56                     |    |  | 58   |    |  | 52   |   
|Depreciation and amortization                                                   |  | 45                     |    |  | 35   |    |  | 32   |   
|Loss on early extinguishment of debt                                            |  | 0                      |    |  | 0    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total operating expenses                                                        |  | 128                    |    |  | 122  |    |  | 113  |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Operating Loss                                                                  |  | (28                    | )  |  | (22  | )  |  | (13  | ) 
|                                                                                |  |                        |    |  |      |    |  |      |   
|Other income and expenses:                                                      |  |                        |    |  |      |    |  |      |   
|Interest Income                                                                 |  | 0                      |    |  | 0    |    |  | 1    |   
|Interest Expense                                                                |  | (17                    | )  |  | (15  | )  |  | (15  | ) 
|Gain on adjustment of warrants to market                                        |  | 1                      |    |  | 0    |    |  | 0    |   
|Other (expense) income, net                                                     |  | (7                     | )  |  | 1    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total                                                                           |  | (23                    | )  |  | (14  | )  |  | (14  | ) 
|                                                                                |  |                        |    |  |      |    |  |      |   
|Loss before income taxes, discontinued operations and preferred stock dividends |  | (51                    | )  |  | (36  | )  |  | (27  | ) 
|                                                                                |  |                        |    |  |      |    |  |      |   
|Income tax benefit (provision)                                                  |  | 0                      |    |  | 0    |    |  | 0    |   
|Income from discontinued operations                                             |  | 0                      |    |  | 0    |    |  | 3    |   
|Preferred stock dividend                                                        |  | (0                     | )  |  | 0    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Net loss attributable to common stockholders                                    |  | (51                    | )% |  | (36  | )% |  | (24  | )%
|                                                                                |  |                        |    |  |      |    |  |      |   



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##### Table of Contents

Quarterly Comparison

The following table presents certain unaudited consolidated statements of operations and other operating data for our eight most recent quarters. The information for each of these quarters is unaudited and has been
prepared on the same basis as our audited consolidated financial statements appearing elsewhere in this annual report. In the opinion of our management, all necessary adjustments, consisting only of normal recurring adjustments, have been included
to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. We believe that results of operations for interim periods should not be
relied upon as any indication of the results to be expected or achieved in any future periods or any year as a whole.



|                                                                  |  |                                       |         |   |              |   |         |               |  |   |              |   |  |              |         |   |              |   |         |               |  |   |              |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | ------------ | ------- | - | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                  |  | Quarters ended                        |        
|                                                                  |  | Mar. 31,2004                          |         |   | June 30,2004 |   |         | Sept. 30,2004 |  |   | Dec. 31,2004 |   |  | Mar. 31,2005 |         |   | June 30,2005 |   |         | Sept. 30,2005 |  |   | Dec. 31,2005 |  
|                                                                  |  | (in thousands, except operating data) |        
|Revenues                                                          |  | $                                     | 53,794  |   |              | $ | 52,735  |               |  | $ | 52,065       |   |  | $            | 52,864  |   |              | $ | 55,030  |               |  | $ | 57,272       |   |  | $ | 58,616  |   |  | $ | 59,939  |  
|Cost of services                                                  |  |                                       | 15,784  |   |              |   | 15,104  |               |  |   | 15,103       |   |  |              | 14,838  |   |              |   | 16,112  |               |  |   | 16,567       |   |  |   | 16,578  |   |  |   | 16,765  |  
|Gross profit                                                      |  |                                       | 38,010  |   |              |   | 37,631  |               |  |   | 36,962       |   |  |              | 38,026  |   |              |   | 38,918  |               |  |   | 40,705       |   |  |   | 42,037  |   |  |   | 43,175  |  
|Loss before discontinued operations and preferred stock dividends |  |                                       | (18,366 | ) |              |   | (18,674 | )             |  |   | (20,082      | ) |  |              | (18,548 | ) |              |   | (16,922 | )             |  |   | (15,538      | ) |  |   | (16,479 | ) |  |   | (14,279 | )
|Net loss                                                          |  |                                       | (18,366 | ) |              |   | (18,664 | )             |  |   | (20,039      | ) |  |              | (18,495 | ) |              |   | (16,878 | )             |  |   | (15,491      | ) |  |   | (7,971  | ) |  |   | (14,474 | )
|Homes passed (5)                                                  |  |                                       | 927,561 |   |              |   | 934,437 |               |  |   | 941,827      |   |  |              | 947,272 |   |              |   | 947,828 |               |  |   | 953,021      |   |  |   | 955,497 |   |  |   | 957,753 |  
|Marketable homes passed (5)                                       |  |                                       | 727,124 |   |              |   | 731,187 |               |  |   | 736,223      |   |  |              | 741,095 |   |              |   | 742,812 |               |  |   | 745,406      |   |  |   | 747,776 |   |  |   | 749,853 |  
|Video connections (1)(5)                                          |  |                                       | 171,532 |   |              |   | 168,031 |               |  |   | 169,089      |   |  |              | 170,588 |   |              |   | 172,966 |               |  |   | 173,268      |   |  |   | 175,294 |   |  |   | 175,472 |  
|Video penetration (2)(5)                                          |  |                                       | 23.6    | % |              |   | 23.0    | %             |  |   | 23.0         | % |  |              | 23.0    | % |              |   | 23.3    | %             |  |   | 23.2         | % |  |   | 23.4    | % |  |   | 23.4    | %
|Digital video connections                                         |  |                                       | 54,332  |   |              |   | 51,831  |               |  |   | 53,920       |   |  |              | 56,838  |   |              |   | 58,241  |               |  |   | 56,510       |   |  |   | 56,945  |   |  |   | 57,212  |  
|Digital penetration of video connections                          |  |                                       | 31.7    | % |              |   | 30.8    | %             |  |   | 31.8         | % |  |              | 33.3    | % |              |   | 33.7    | %             |  |   | 32.6         | % |  |   | 32.5    | % |  |   | 32.6    | %
|Voice connections on-net (3)                                      |  |                                       | 121,012 |   |              |   | 121,819 |               |  |   | 125,337      |   |  |              | 128,755 |   |              |   | 133,847 |               |  |   | 137,604      |   |  |   | 142,161 |   |  |   | 145,561 |  
|On-net voice penetration (4)                                      |  |                                       | 16.3    | % |              |   | 16.7    | %             |  |   | 17.0         | % |  |              | 17.4    | % |              |   | 18.0    | %             |  |   | 18.5         | % |  |   | 19.0    | % |  |   | 19.4    | %
|Data connections                                                  |  |                                       | 75,220  |   |              |   | 77,174  |               |  |   | 82,152       |   |  |              | 86,368  |   |              |   | 93,522  |               |  |   | 97,373       |   |  |   | 102,555 |   |  |   | 105,636 |  
|Data penetration (2)                                              |  |                                       | 10.1    | % |              |   | 10.3    | %             |  |   | 11.1         | % |  |              | 11.7    | % |              |   | 12.6    | %             |  |   | 13.1         | % |  |   | 13.7    | % |  |   | 14.1    | %
|Total connections                                                 |  |                                       | 373,666 |   |              |   | 372,064 |               |  |   | 382,556      |   |  |              | 391,698 |   |              |   | 406,414 |               |  |   | 414,341      |   |  |   | 426,234 |   |  |   | 432,849 |  
|Average monthly revenue per connection                            |  | $                                     | 47.04   |   |              | $ | 47.04   |               |  | $ | 45.94        |   |  | $            | 46.52   |   |              | $ | 45.99   |               |  | $ | 46.57        |   |  | $ | 46.49   |   |  | $ | 46.39   |  

---

|(1) | Video connections include customers who receive analog or digital video services.
|--- | ---------------------------------------------------------------------------------

|(2) | Penetration is measured as a percentage of marketable homes passed.
|--- | -------------------------------------------------------------------

|(3) | On-net connections are connections provided over our network as opposed to telephone lines leased from third parties.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(4) | On-net voice penetration is measured as a percentage of marketable homes passed and excludes off-net connections, as well as connections and marketable homes related to our
incumbent local exchange carrier subsidiaries.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Cerritos, California market is excluded from operating statistics.
|--- | ------------------------------------------------------------------

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Revenues. Operating revenues
increased 9.2% from $211.5 million for the year ended December 31, 2004, to $230.9 million for the year ended December 31, 2005. Operating revenues from video services increased 5.6% from $97.6 million for the year ended
December 31, 2004, to $103.0 million for the same period in 2005.



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Operating revenues from voice services increased 7.1% from $72.4 million for the year ended December 31, 2004, to $77.6 million for the same period
in 2005. Operating revenues from data and other services increased 21.2% from $41.4 million for the year ended December 31, 2004, to $50.2 million for the same period in 2005.

The increased revenues from video, voice and data and other services are due primarily to an increase in the number of connections, from 391,698 as of
December 31, 2004, to 432,849 as of December 31, 2005. The additional connections resulted primarily from:



| |  |  | triple-play bundle customers grew 24.6% in 2005;
| | - |  | ------------------------------------------------



| |  |  | voice service offerings were rolled out to approximately 60% of marketable homes passed in Pinellas County, Florida;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | business connections grew 15% in 2005; and
| | - |  | ------------------------------------------



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

We added
video connections in 2005 as the popularity of additional services and products such as DVRs, high-definition televisions and broadcast grew. We expect to add new video connections in the future, but as our video segment matures in our current
markets, we expect to grow at a decreasing rate compared to our historical experience. While the number of new video connections may grow at a declining rate, we believe that the opportunity to increase revenue and video gross profits is available
through price increases and the introduction of new products and new technology. New voice and data connections are expected to increase as we continue our sales and marketing efforts directed at selling customers a bundle of services, penetrating
untapped market segments and offering new services. Relative to our current product mix, we expect voice and data revenue will become larger percentages of our overall revenue, and potentially will provide higher gross profits. Based on the
anticipated changes in our revenue mix, we expect that our consolidated cost of services as a percentage of consolidated revenues will decrease.

Cost of services. Cost of services increased 8.5% from $60.8 million for the year ended December 31, 2004, to $66.0 million for the year ended December 31, 2005. Cost of services for video services increased 5.7%
from $48.4 million for the year ended December 31, 2004, to $51.2 million for the same period in 2005. Cost of services for voice services increased 20.8% from $10.6 million for the year ended December 31, 2004, to $12.9 million
for the same period in 2005. Cost of services for data and other services increased 11.3% from $1.8 million for the year ended December 31, 2004, to $2.0 million for the same period in 2005. We expect our cost of services to increase
as we add more connections. The increase in video cost of service are primarily due to programming costs increases, which have been increasing over the last several years on an aggregate basis due to an increase in subscribers and on a per
subscriber basis due to an increase in costs per program channel. We expect this trend to continue and 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. Increases in voice and data costs of services are primarily a result of the additions of leased facilities used to backhaul our traffic to our switching facilities and the increase in connections and the need for more data capacity.

Gross profit. Gross profit increased 9.4% from $150.6 million for the year ended December 31, 2004, to
$164.8 million for the year ended December 31, 2005. Gross profit for video services increased 5.4% from $49.2 million for the year ended December 31, 2004, to $51.8. million for the same period in 2005. Gross profit for voice
services increased 4.8% from $61.8 million for the year ended December 31, 2004, to $64.7 million for the same period in 2005. Gross profit for data and other services increased 21.6% from $39.7 million for the year ended
December 31, 2004, to $48.3 million for the same period in 2005. The increase in gross profit is primarily a result of the changes in revenues and cost of services as described above.

Selling, general and administrative. Our selling, general and administrative decreased 2.3% from $122.5 million for the year ended
December 31, 2004, to $119.7 for the year ended December 31, 2005. The decrease in our operating costs, included in selling, general and administrative, is consistent with our focus on



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process efficiencies, execution and customer service in 2005, and included decreases in personnel cost, marketing and advertising, bad debt expense, cost of
billing our customers and general office expenses. Our capital market activities, included in selling, general and administrative, were $880,000 for the year ended December 31, 2004, compared to $62,000 for the year ended December 31,
2005. The capital market activities in 2004 were primarily fees and expenses for a proposed debt offering which was withdrawn during the first quarter of 2004. In 2005 we incurred one-time charges of approximately $334,000 for certain severance
expenses, included in selling, general and administrative, related to a reduction in our workforce. Our litigation fees, included in selling, general and administrative, decreased from $377,000 for the year ended December 31, 2004, to $46,000
for the year ended December 31, 2005, primarily due to less activity related to the Insight litigation. Our non-cash stock option compensation expense, included in selling, general and administrative, decreased from $3.6 million for the
year ended December 31, 2004 to $2.1 million for the year ended December 31, 2005. The higher non-cash stock option compensation expense in 2004 was primarily due to a re-pricing of certain stock options during the second quarter of
2004.

Depreciation and amortization.Our depreciation and amortization increased from $74.2 million for the year ended
December 31, 2004, to $74.5 million for the year ended December 31, 2005. The increase in depreciation and amortization resulted primarily from the additions in property, plant, equipment 2005 related to the preparation of our network
for voice service in Pinellas County. We expect depreciation and amortization expense to decrease as our overall capital expenditures decrease and existing long-lived assets become fully depreciated.

Loss on early extinguishment of debt.In 2005 we recorded a loss of approximately $544,000 on the early extinguishment of debt related to the
repayment of all amounts outstanding under our credit facilities with Wachovia Bank, National Association and Cobank, ACB and the redemption of our 12% senior notes due 2009.

Interest income.Interest income was $720,000 for the year ended December 31, 2004, compared to $1.1million for the same period in 2005. The
increase in interest income primarily reflects a higher average cash and cash equivalent balance during the year ended December 31, 2005.

Interest expense. Interest expense increased from $31.1 million for the year ended December 31, 2004, to $34.5 million for the year ended December 31, 2005. The increase in interest expense for 2005 is primarily a
result of a thirty-day call notice on our 12% senior notes due 2009, as required by the indenture agreement governing the senior notes. During the third quarter of 2005 we incurred interest expense on the senior notes as well as our first and second
lien facilities.

Gain on the adjustment of warrants to market. During 2004, we adjusted the carrying value of the outstanding
warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share value of our common stock on December 31, 2004 was $3.90 resulting in a $535,000 gain on the
adjustment of warrants to market value. During 2005, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per
share value of our common stock on December 31, 2005 was $3.84 resulting in a $37,000 gain on the adjustment of warrants to market.

Other (expense) income, net. Other expenses, net decreased from income of $133,000 for the year ended December 31, 2004 to an expense of $12,000 for the year ended December 31, 2005.

Income tax provision. We recorded no income tax benefit for the years ended December 31, 2004 and 2005, respectively, as our net operating
losses are fully offset by a valuation allowance.

Loss before discontinued operations. We incurred a loss before discontinued
operations of $75.7 million for the year ended December 31, 2004, compared to a loss before discontinued operations of $63.2 million for the year ended December 31, 2005.



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Income from discontinued operations. Effective April 30, 2004, following the guidance of SFAS
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, we deemed the Cerritos, California cable system to be a long-lived asset to be disposed of based on our actions taken to sell the property. We recorded income
from discontinued operations of $106,000 for the year ended December 31, 2004, compared to $8.4 million, which included a gain on disposal of $8.3 million, for the year ended December 31, 2005.

Preferred stock dividends. We issued 58,742 additional shares of the Series AA preferred stock in 2005, as a stock dividend, and recognized an
expense of $588,000 for the year ended December 31, 2005.

Net loss attributable to common stockholders. We incurred a net loss
attributable to common stockholders of $75.6 million and $55.4 million for the years ended December 31, 2004 and 2005, respectively. We expect net losses to decrease as our business matures.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues. Operating revenues increased 22.3% from $172.9 million for the year ended December 31, 2003, to $211.5 million for the year ended December 31, 2004. Operating revenues from video
services increased 35.8% from $71.9 million for the year ended December 31, 2003, to $97.6 million for the same period in 2004. Operating revenues from voice services increased 3.3% from $70.1 million for the year ended
December 31, 2003, to $72.4 million for the same period in 2004. Operating revenues from data and other services increased 33.9% from $30.9 million for the year ended December 31, 2003, to $41.4 million for the same period
in 2004.

The increased revenues from video, voice and data and other services are due primarily to an increase in the number of
connections, from 381,815 as of December 31, 2003, which included 58,422 connections acquired from Verizon Media in December of 2003, to 398,433 as of December 31, 2004. For the year ended December 31, 2003, the connections acquired
from Verizon Media generated less than $300,000 in revenues. The additional connections resulted primarily from:



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



| |  |  | Sales of voice and data services, which accounted for the positive growth in our connections added from December 31, 2003 through December 31, 2004. We gained these
connections by offering competitive plans that focus on bundling services to customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The acquisition of cable system assets in Cerritos, California and Pinellas County, Florida from Veizon Media.
| | - |  | --------------------------------------------------------------------------------------------------------------

We experienced a loss of video connections in 2004 as we transitioned our acquired Pinellas County customers to new plans and rates.

Cost of services. Cost of services increased 30.7% from $46.5 million for the year ended December 31, 2003, to $60.8 million for
the year ended December 31, 2004. Cost of services for video services increased 46.2% from $33.1 million for the year ended December 31, 2003, to $48.4 million for the same period in 2004. Cost of services for voice services decreased
6.5% from $11.4 million for the year ended December 31, 2003, to $10.6 million for the same period in 2004. Cost of services for data and other services decreased 12.8% from $2.0 million for the year ended December 31, 2003, to
$1.8 million for the same period in 2004. The decrease in voice and data cost of services is primarily due to efficiency gains in our network architecture.

Gross profit. Gross profit increased 19.2% from $126.4 million for the year ended December 31, 2003, to $150.6 million for the year ended December 31, 2004. Gross profit for video services
increased 26.9% from $38.7 million for the year ended December 31, 2003, to $49.2. million for the same period in 2004. Gross profit for voice services increased 5.2% from $58.7 million for the year ended December 31, 2003, to
$61.8 million for the same period in 2004. Gross profit for data and other services increased 37.1% from $28.9 million for the year ended December 31, 2003, to $39.7 million for the same period in 2004. The increase in gross profit
was primarily a result of the changes in revenues and cost of services as described above.



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Selling, general and administrative. Our operating expenses, excluding depreciation and
amortization, increased 27.4% from $96.2 million for the year ended December 31, 2003, to $122.5 for the year ended December 31, 2004. The increase in our operating expenses is consistent with the growth in revenues and is a result of
the expansion of our operations and an increase in the number of employees associated with such expansion and growth. During 2004 we incurred certain incremental expenses associated with the unusual storm and hurricane activity. Our capital market
activities, included in selling, general and administrative, were $84,000 for the year ended December 31, 2003, compared to $880,000 for the year ended December 31, 2004. Our litigation fees, included in selling, general and
administrative, decreased from $907,000 for the year ended December 31, 2003, to $377,000 for the year ended December 31, 2004. The decrease in litigation fees is primarily due to less activity related to the Insight litigation. Our
non-cash stock option compensation expense, included in selling, general and administrative, increased from $1.9 million for the year ended December 31, 2003 to $3.6 million for the year ended December 31, 2004. The increase in
the non-cash stock option compensation expense was primarily due to a re-pricing of certain stock options during the second quarter of 2004.

Depreciation and amortization.Our depreciation and amortization decreased from $77.8 million for the year ended December 31, 2003, to $74.2 million for the year ended December 31, 2004. The decrease in
depreciation and amortization resulted from a combination of lower spending for additions in property, plant, equipment and intangible assets in 2004, and a portion of our long-lived assets becoming fully depreciated.

Interest income.Interest income was $379,000 for the year ended December 31, 2003, compared to $720,000 for the same period in 2004. The
increase in interest income primarily reflects a higher average cash and cash equivalent balance for the year ended December 31, 2004.

Interest expense. Interest expense increased from $29.2 million for the year ended December 31, 2003, to $31.1 million for the year ended December 31, 2004. The increase in interest expense for 2004 resulted from a higher
average debt balance outstanding due to in-kind interest payments associated with our senior notes.

Gain on the adjustment of warrants
to market. In the fourth quarter of 2003, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published market per share value of our common stock. The published market per share
value of our common stock on December 31, 2003 was $9.03 resulting in a $929,000 gain on the adjustment of warrants to market value. During 2004, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market
value based on the published market per share value of our common stock. The published market per share value of our common stock on December 31, 2004 was $3.90 resulting in a $535,000 gain on the adjustment of warrants to market.

Other (expense) income, net. Other expenses, net decreased from $12.3 million for the year ended December 31, 2003 to $134,000 for
the year ended December 31, 2004. We recorded a loss on our investment in Grande Communications, Inc. of $12.4 million for the year ended December 31, 2003 after we determined that the adverse conditions at Grande were other than
temporary.

Income tax provision. We recorded no income tax benefit for the years ended December 31, 2003 and 2004,
respectively, as our net operating losses are fully offset by a valuation allowance.

Loss before discontinued operations. We
incurred a loss before discontinued operations of $87.8 million for the year ended December 31, 2003, compared to a loss before discontinued operations of $75.7 million for the year ended December 31, 2004.

Income from discontinued operations. The amount recorded represents the income from our Cerritos operations, which was sold in 2005.

Net loss attributable to common stockholders. We incurred a net loss attributable to common stockholders of $87.8 million and
$75.6 million for the years ended December 31, 2003 and 2004, respectively.



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##### Table of Contents

Liquidity and Capital Resources

Overview.

As of December 31, 2005, we had approximately $15.7 million of cash, cash equivalents
and restricted cash on our balance sheet. Our net working capital on December 31, 2005, was a deficit of $14.2 million, compared to net working capital of $3.2 million as of December 31, 2004. The decrease in working capital from
December 31, 2004 to December 31, 2005 is primarily due to the use of funds for the enhancement of the network and funding of operations in the Pinellas County market.

We believe that we have adequate liquidity from cash on hand and cash provided from operations to fund capital expenditures, operating expenses and debt
service through 2006. Should we require additional funding, we have available a $25 million revolver.

On September 12, 2005, we
completed the sale of our cable assets in Cerritos, California to WaveDivision Holdings, LLC for $10 million in cash, subject to certain post-closing adjustments. The net proceeds from the sale were used for general corporate purposes,
including the funding of success-based capital expenditures and operating expenses, with the exception of $1.0 million that was recorded in the restricted cash balance as of December 31, 2005. The $1.0 million represents an escrow requirement
in connection with the closing, and $500,000 of this balance was released in March 2006, with the remaining $500,000 to be released in September 2006.

In May 2005, we issued 920,000 shares of a newly created series of preferred stock, the Series AA convertible preferred stock (Preferred Stock), in a private offering to certain new and existing investors at a
purchase price of $10.00 per share, for aggregate gross proceeds before expenses of $9.2 million. In October 2005, we received gross offering proceeds of $10.8 million and certain selling shareholders received proceeds of $1.9 million for the resale
of a portion of their shares issued in May 2005. In November 2005, the Company used net offering proceeds to pay down principal of $10.4 million on the first lien debt. Dividends will accrue on the Preferred Stock at an 8% annual rate, which may be
paid in cash or additional shares of the Preferred Stock. However, pursuant to the restrictions of our new debt, we are prohibited from paying dividends in cash other than cash in lieu of fractional shares. During the year, 58,742 shares of
Preferred Stock were issued as dividends for a total of $588,000. The Shares of the Series AA Preferred Stock are: (i) immediately convertible upon the request of the stockholder of record, (ii) mandatorily convertible at a future date
when the common stock is traded at a quoted price of $8.00 or higher for a certain period of time, and (iii) redeemable beginning December 31, 2011. As of December 31, 2005, shareholders had converted 73,661 shares of preferred stock.
Each share of the Preferred Stock is convertible into a number of shares of Common Stock equal to the quotient of the Liquidation Value of the Preferred Stock divided by $2.00, subject to proportional anti-dilution adjustments for stock dividends,
stock splits and similar transactions affecting the Common Stock as well as institutional weighted average adjustments for issuances of Common Stock and Common Stock equivalents. Our Series AA preferred stock is not classified as a
liability since the redemption is contingent upon the holders not exercising its option to convert into a fixed number of shares, five shares of common for each share of preferred. We follow the guidance in Accounting Series Release
(ASR) 268 Presentation in Financial Statements of Redeemable Preferred Stocks. ASR 268 highlights the redemption obligation of the securities and the fact that amounts attributable to these securities are not part of
permanent capital. Accordingly, we have classified our preferred shares on the consolidated balance sheet between liabilities and permanent equity in the caption Redeemable Convertible Preferred Stock.

On June 29, 2005, we entered into a first lien credit agreement and second lien credit agreement providing us with aggregate cash proceeds of $280
million. In June 2005, we used a portion of the proceeds from the lien agreements to repay all amounts outstanding under our credit facilities with Wachovia Bank, National Association and CoBank, ACB. In July 2005 we used the remaining proceeds,
together with cash on hand, to redeem our 12% senior notes due 2009.

The first lien credit agreement provides for a five-year senior
secured $185 million term loan facility, of which approximately $173.7 million is currently outstanding, and a $25 million revolving loan and letter of credit



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facility of which no funds have been drawn. The first lien term facility bears interest at a rate of LIBOR plus 5.5%. The unused portion of the first lien
revolving facility is subject to an annual fee of between .375% and .75%, depending on usage of the facility. Interest on the first lien facilities is payable quarterly. The first lien term facility amortizes at a rate of 1.0% per annum, with
$475,000 payable quarterly, and matures on June 29, 2010. We may prepay amounts outstanding under the first lien term facility prior to maturity, but we must pay a premium if we prepay prior to June 29, 2008, except for prepayments made
with the proceeds from the sale of our equity securities.

The second lien credit agreement provides for a six-year senior secured term
loan facility with an aggregate principal amount at maturity of approximately $99 million. The second lien was discounted at 4.0% and on June 29, 2005, we received proceeds of $95 million. Borrowings under the second lien term facility bear
interest at a at a rate of LIBOR plus 10.0% of which 8.5% is paid in cash and 1.5% is paid in kind. This facility does not amortize and the entire unpaid principal amount is due in full on the maturity date of June 29, 2011. We may not prepay
any amount outstanding prior to June 29, 2008, except for prepayments made with the proceeds from the sale of our equity securities. If we prepay any amounts after June 29, 2008 but prior to June 29, 2011, we are required to pay a
premium.

Both credit facilities are guaranteed by all of our subsidiaries. The credit facilities are also secured by first and second
liens on all of our assets and the assets of our guarantor subsidiaries.

The credit agreements both contain 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 under the first lien facilities or second lien facility, as applicable, with excess cash flow, proceeds from asset sales, 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 first lien debt to EBITDA (as defined in the credit agreements), total debt to EBITDA, and EBITDA to cash interest.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

The credit agreements also include customary events of default, including but not limited to:



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



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



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



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



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



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



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



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



| |  |  | change of control;
| | - |  | ------------------



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



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



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

In July 2005, we entered into an interest rate cap agreement with Credit Suisse First Boston International at a notional amount of $280 million, covering
the first and second liens, to cap our adjustable LIBOR rate at 5%, mitigating interest rate risk on the loans. We paid $1.3 million for this cap agreement, which became effective July 29, 2005 and terminates July 29, 2008. The cap
agreement had a fair value of $1.5 million as of December 31, 2005, resulting in a derivative gain of $267,000. Changes in fair value of the cap agreement are, and will continue to be, recorded within interest expense

As of December 31, 2005 we are in compliance with all of our debt covenants.

Operating, Investing and Financing Activities.

As of December 31, 2005, we had a net working
capital deficit of $14.2 million, compared to net working capital of $3.2 million as of December 31, 2004. The decrease in working capital from December 31, 2004 to December 31, 2005 is primarily due to the use of funds for
the enhancement of the network and funding of operations in the Pinellas County market.

Net cash provided by operating activities from
continuing operations totaled $29.5 million, $22.4 million and $19.2 million for the years ended December 31, 2003, 2004 and 2005, respectively, and operating activities from discontinued operations used net cash of
$0.1 million and $0.4 million for the years ended December 31, 2004 and 2005, respectively. The net cash flow activity related to operations consists primarily of changes in operating assets and liabilities and adjustments to net income
for non-cash transactions including:



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



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



| |  |  | write off of investments;
| | - |  | -------------------------



| |  |  | gain on discontinued operations;
| | - |  | --------------------------------



| |  |  | accretion of bank loan;
| | - |  | -----------------------



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



| |  |  | non-cash interest rate cap interest income;
| | - |  | -------------------------------------------



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



| |  |  | loss on early extinguishment of debt;
| | - |  | -------------------------------------



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



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



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

Net cash used
in investing activities for continuing operations was $97.0 million, $40.9 million and $15.3 million for the years ended December 31, 2003, 2004 and 2005, respectively, and investing activities from discontinued operations
provided cash of $9.7 million for the year ended December 31, 2005. Our investing activities for the year ended December 31, 2003, consisted of $35.5 million of capital expenditures, $50.0 million



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for the purchase of short term investments, $0.4 million in organizational and franchise expenditures, $1.5 million of cash pledged as security,
$18.8 million for the acquisition of Verizon Media and an investment of $1.1 million in Grande, partially offset by $10.0 million from the sale of short term investments and $0.4 million of proceeds from the sale of property.
Investing activities in 2004 consisted of $63.6 million of capital expenditures, $210.1 million for the purchase of short term investments, $0.3 million in organizational and franchise expenditures and $4.6 million of cash
pledged as security, partially offset by $237.4 million from the sale of short term investments and $0.2 million of proceeds from the sale of property. Investing activities in 2005 consisted of $31.6 million of capital expenditures,
$4.0 million for the purchase of short term investments and $0.3 million in organizational and franchise expenditures, partially offset by $16.6 million from the sale of short term investments, $0.2 million of proceeds from the sale
of property and $3.8 million of cash pledged as security that was returned. The investing activities from discontinued operations of $9.7 million for the year ended December 31, 2005, included an $8.3 million gain in the disposal of
discontinued operations. The gain was a result of the sale of our cable assets in Cerritos, California to WaveDivision Holdings, LLC for $10.0 million in cash.

We received net cash flow from financing activities of $45.4 million and $4.2 million for the years ended December 31, 2003 and 2004, respectively, and used $7.2 million in financing activities for the year
ended December 31, 2005. In 2003 financing activities consisted primarily of $48.8 million of net proceeds from our initial public offering of common stock partially offset by $3.4 million in principal payments on debt. In 2004
financing activities consisted primarily of $7.3 million of net proceeds from the fulfillment of the over allotment option of our initial public offering of common stock, partially offset by $2.7 million in principal payments on debt and
$0.4 million of expenditures related to issuance of debt. In 2005 financing activities consisted primarily of $296.0 million in principal payments on debt, $9.7 million of expenditures related to issuance of debt, $0.3 million of expenses
related to the issuance of our Series AA preferred stock and $1.3 million of for the purchase of a interest rate hedge agreement with Credit Suisse First Boston International, partially offset by $280.0 million of proceeds from first lien and
second lien credit agreement, $20.0 million in gross proceeds from the issuance of our Series AA preferred stock and $122,000 of proceeds from stock options exercised.

Capital Expenditures, Operating Expenses and Debt Service

We spent approximately $31.6 million
in capital expenditures during 2005, of which approximately $6.0 million related to network construction and enhancement and the remainder related to the purchase of customer premise equipment, such as cable set-top boxes and cable modems,
network equipment, including switching and transport equipment, and billing and information systems.

We expect to spend approximately
$25.0 million in capital expenditures during 2006. We believe we will have sufficient cash on hand and cash from internally generated cash flow to cover our planned operating expenses, capital expenditures and service our debt during 2006. The
credit agreements and covenants on our new debt limit the amount of our capital expenditures on an annual basis.

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



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Contractual Obligations

The following table sets forth, as of December 31, 2005, our long-term debt, capital leases and operating lease obligations for 2006, the following five years and thereafter. The long-term debt obligations are
our cash debt service obligations, including both principal and interest. The capital lease obligations are our future rental payments under one lease with a 10-year term and network fiber leasing aggreements. Operating lease obligations are the
future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2005.



|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |      
|------------------------------------- |  | --------------------- | ----- | -------------------------------------- | - | -------------------------------------- |  | -------------------------------------- | ----- | --------------------- | - | ----- |  | - | -----
|                                      |  | Payment due by period
|Contractual obligations (in millions) |  | Total                 |       | January 1, 2006throughDecember 31,2006 |   | January 1, 2007throughDecember 31,2008 |  | January 1, 2009throughDecember 31,2010 |       | AfterDecember 31,2010
|                                      |  | (in thousands)       
|Long-term debt obligations            |  | $                     | 269.8 |                                        | $ | 1.9                                    |  | $                                      | 3.7   |                       | $ | 168.1 |  | $ | 96.1 
|Interest                              |  |                       | 160.2 |                                        |   | 32.8                                   |  |                                        | 64.9  |                       |   | 55.3  |  |   | 7.2  
|Capital lease obligation              |  |                       | 9.3   |                                        |   | 0.4                                    |  |                                        | 1.0   |                       |   | 1.1   |  |   | 6.8  
|Operating lease obligations           |  |                       | 10.6  |                                        |   | 2.1                                    |  |                                        | 2.9   |                       |   | 1.8   |  |   | 3.8  
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |      
|Programming contracts (1)             |  |                       | 157.0 |                                        |   | 52.0                                   |  |                                        | 105.0 |                       |   | 0     |  |   | 0    
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |      
|Pole attachment obligations (2)       |  |                       | 9.3   |                                        |   | 3.1                                    |  |                                        | 6.2   |                       |   | 0     |  |   | 0    
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |      
|Total                                 |  | $                     | 616.2 |                                        | $ | 92.3                                   |  | $                                      | 183.7 |                       | $ | 226.3 |  | $ | 113.9
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |      

---

|(1) | The Company has entered into contracts with various entities to provide programming to be aired by the Company. The Company pays a monthly fee for the programming services,
generally based on the number of average video subscribers to the program, although some fees are adjusted based on the total number of video subscribers to the system and/or the system penetration percentage. The amounts presented are based on the
estimated number of connections we will have in future periods through the completion of the current contracts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Federal law requires utilities, defined to include all local telephone companies and electric utilities except those owned by municipalities and co-operatives, to provide cable
operators and telecommunications carriers with nondiscriminatory access to poles, ducts, conduit and rights-of-way at just and reasonable rates. Utilities may charge telecommunications carriers a different rate for pole attachments than they charge
cable operators providing solely cable service. The amounts presented are based on the estimated number of poles we will attach to in future periods through the completion of the current contracts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As discussed above, we currently expect to spend $25.0 million in capital expenditures in 2006. We expect to fund our contractual obligations,
programming costs, expected capital expenditures and service debt using a portion of the approximately $15.7 million of cash and cash equivalents and short term investments on hand as of December 31, 2005, with the remainder funded by cash
flow generated by operations. Beyond 2006, we may need to raise additional capital through equity offerings, asset sales or re-finance our.

Recent
Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections a replacement
of APB Opinion No. 20 and FASB Statement No.3. This Statement replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements
for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in an accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that
the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and error corrections occurring in fiscal years beginning after December 15, 2005. We adopted SFAS No. 154, which
resulted in no impact to our financial position or results of operations.



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In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation of an entity
to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not he within the control of the entity. Such an obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. FIN 47 is effective for the Company no later than December 31, 2005. We adopted FIN 47, which resulted in no material impact to our financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), which replaces SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R 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, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. In addition, SFAS
No. 123R will cause unrecognized expense related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the remaining vesting period. In December 2002 the Company elected to adopt the
recognition provisions of SFAS No. 123 which is considered the preferable accounting method for stock-based employee compensation. The Company also elected to report the change in accounting principle using the prospective method in accordance
with SFAS No. 148. Under the prospective method, the recognition of compensation costs is applied to all employee awards granted, modified or settled after the beginning of the fiscal year in which the recognition provisions are first applied.
In January 2006, we adopted SFAS No. 123R, and because the fair value recognition provisions of SFAS No. 123 were adopted in 2003, there was no material impact to our results of operations or financial position.

At the March 2004 Emerging Issues Task Force (EITF) meeting, the EITF reached a consensus on the Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments. Issue 03-1 defines the terms otherthan-temporary and other-than-temporary impairment and establishes a three-step impairment model applicable to debt and equity
securities that are within the scope of SFAS 115. At the November 2003 EITF meeting, the EITF reached a consensus effective for fiscal years ending after December 15, 2003 on quantitative disclosures. Except for disclosure requirements already
in place, the Issue 03-1 consensus will be effective prospectively for all relevant current and future investments in reporting periods beginning after June 15, 2004. We adopted EITF Issue No. 03-1 disclosure requirements for the fiscal
year ended December 31, 2003 and the adoption did not have material impact on our results of operations or financial position.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

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

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



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The determination of the estimated fair value of our variable-rate debt is subject to the effects of
interest rate risk. The estimated fair value of our variable-rate debt instruments at December 31, 2005 was $278.2 million, compared to a carrying amount of $269.8 million.

The estimated fair value of our debt is based on quoted market prices. If the borrowing rates under LIBOR were to increase 1% above the current rates at
December 31, 2005, our interest expense on the debt would increase approximately $500,000 on an annual basis, including any interest expense associated with the use of derivative rate hedging instruments as described above.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Item 8 is incorporated by reference to pages F-1 through F-24.



|ITEM 9. | CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ---------------------------------------------------------------------------------

None.



|ITEM 9A. | 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 December 31, 2005. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2005, 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 December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

A portion of the information required by this Item 10 will be contained in the sections entitled Information About Our Executive Officers, Directors and Nominees, Meetings and Committees of the Board and
Section 16(a) Beneficial Ownership Reporting Compliance of our definitive proxy statement for our 2006 Annual Meeting of Stockholders to be filed with the SEC, and such information is incorporated in this Annual Report on Form 10-K
by this reference.

We have adopted a code of ethics that applies to our employees, officers and directors, including our chief executive
officer, chief financial officer, principal accounting officer and controller. This code of ethics is posted on our website located at www.knology.com. The code of ethics may be found as follows: From our main web page, first click on About
Us at the bottom of the page and then on Investor Relations. Next, click on Corporate Governance. Finally, click on Standards of Conduct. We intend to satisfy the disclosure requirement under Item 10 of
Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required by
this Item 11 will be contained in the section entitled Executive Compensation and Meetings and Committees of the Board of our definitive proxy statement for our 2006 Annual Meeting of Stockholders to be filed with the
SEC, and such information is incorporated in this Annual Report on Form 10-K by this reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this Item 12 will be contained in the sections entitled Executive CompensationEquity Compensation Plan
Information and Principal Stockholders of our definitive proxy statement for our 2006 Annual Meeting of Stockholders to be filed with the SEC, and such information is incorporated in this Annual Report on Form 10-K by this
reference.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The
information required by this Item 13 will be contained in the section entitled Certain Relationships and Related Transactions of our definitive proxy statement for our 2006 Annual Meeting of Stockholders to be filed with the SEC,
and such information is incorporated in this Annual Report on Form 10-K by this reference.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information required by this Item 14 will be contained in the section entitled Independent Registered Public Accounting Firm of our definitive proxy statement for our 2006 Annual Meeting of Stockholders to be filed with the SEC, and
such information is incorporated in this Annual Report on Form 10-K by this reference.



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PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

(a)(1)
The following Consolidated Financial Statements of the Company and independent auditors report are included in Item 8 of this Form 10-K.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2005.

Consolidated Statements of Operations for the Years Ended December 31, 2003, 2004 and 2005.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005.

Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2003, 2004 and 2005.

Notes to Consolidated Financial Statements.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission either have been included in the Consolidated Financial Statements of the Company or the notes thereto, are
not required under the related instructions or are inapplicable, and therefore have been omitted.

(a)(3) The following exhibits are either
provided with this Form 10-K or are incorporated herein by reference:



|            |  |                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                 
|2.1         |  | Asset Purchase Agreement, dated as of July 15, 2003, by and between Verizon Media Ventures Inc. and Knology New Media, Inc. (Incorporated herein by reference to Exhibit 2.2 to
Knology, Inc.s Registration Statement on Form S-2 (File No. 333-109366)).                                                          
|            | 
|2.2         |  | Side Letter Agreement, dated as of July 15, 2003, by and between Verizon Media Ventures Inc. and Knology New Media, Inc. (Incorporated herein by reference to Exhibit 2.3 to Knology,
Inc.s Registration Statement on Form S-2 (File No. 333-109366)).                                                             
|            | 
|2.3         |  | Asset Purchase Agreement, dated March 24, 2005, between Knology Broadband of California, Inc. and WaveDivision Holdings, LLC (Incorporated herein by reference from Exhibit 10.1 to Knology,
Inc.s Quarterly Report on Form 10-Q for the period ended March 31, 2005 (File No. 000-32647)).                        
|            | 
|2.4         |  | Escrow Agreement, dated as of March 24, 2005, by and among Knology Broadband of California, Inc., WaveDivision Holdings, LLC and SunTrust Bank (Incorporated herein by reference from Exhibit
10.1 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended March 31, 2005 (File No. 000-32647)).      
|            | 
|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 (File No. 000-32647)).                                                                                         
|            | 
|3.2         |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of the Series AA Convertible Preferred Stock (Incorporated herein by reference to
Exhibit 3.1 to Knology Inc.s Current Report on Form 8-K filed on May 27, 2005 (File No. 000-32647)).                    
|            | 
|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 (File No. 000-32647)).
|            | 
|3.4         |  | 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)).                                                                                                                                                                  



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                               
|4.1         |  | Stockholder Protection Rights Agreement, dated as of July 27, 2005, by and between Knology, Inc. and Wachovia Bank, N.A., acting as Rights Agent (which includes as Exhibit A thereto the Form
of Rights Certificate) (Incorporated herein by reference to Exhibit 4.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005).                                                                                        
|            | 
|10.1.1      |  | Stockholders Agreement dated February 7, 2000 among Knology, Inc., certain holders of the Series A preferred stock, the holders of Series B Preferred stock, certain management
holders and certain additional stockholders (Incorporated herein by reference to Exhibit 10.84 to Knology, Inc.s Post-Effective Amendment No. 2 to Form S-1 (File No. 333-89179)).                                                               
|            | 
|10.1.2      |  | Amendment No. 1 to Stockholders Agreement, dated as of February 7, 2000, by and among Knology, Inc. and the other signatories thereto, dated as of January 12, 2001, by and
among Knology, Inc. and the other signatories thereto (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.s Current Report on Form 8-K filed January 26, 2001 (File No. 000-32647)).                                                   
|            | 
|10.1.3      |  | Amendment No. 2 to Stockholders Agreement, dated as of February 7, 2000, by and among Knology, Inc. and the other signatories thereto, as amended as of January 12, 2001, dated
as of October 18, 2002, by and among Knology, Inc. and the other signatories thereto (Incorporated herein by reference to Exhibit 10.1.3 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002
(File No. 000-32647)).
|            | 
|10.2        |  | Lease, dated June 1, 2003 by and between D. L. Jordan, L.L.P. Family Partnership and Knology, Inc. (Incorporated herein by reference from Exhibit 10.62 to Knology, Inc.s
Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                 
|            | 
|10.3        |  | Pole Attachment Agreement dated January 1, 1998 by and between Gulf Power Company and Beach Cable, Inc. (Incorporated herein by reference to Exhibit 10.7 to Knology Broadband,
Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                                  
|            | 
|10.4        |  | Telecommunications Facility Lease and Capacity Agreement, dated September 10, 1996, by and between Troup EMC Communications, Inc. and Cybernet Holding, Inc. (Incorporated herein by
reference to Exhibit 10.16 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                            
|            | 
|10.5        |  | Master Pole Attachment agreement dated January 12, 1998 by and between South Carolina Electric and Gas and Knology Holdings, Inc. d/b/a/ Knology of Charleston (Incorporated herein by
reference to Exhibit 10.17 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                          
|            | 
|10.6        |  | Lease Agreement, dated December 5, 1997 by and between The Hilton Company and Knology of Panama City, Inc. (Incorporated herein by reference to Exhibit 10.25 to Knology Broadband,
Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                              
|            | 
|10.7        |  | Certificate of Membership with National Cable Television Cooperative, dated January 29, 1996, of Cybernet Holding, Inc. (Incorporated herein by reference to Exhibit 10.34 to Knology
Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                 
|            | 
|10.8        |  | Ordinance No. 99-16 effective March 16, 1999 between Columbus consolidated Government and Knology of Columbus Inc. (Incorporated herein by reference to Exhibit 10.18 to Knology
Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                                                                         
|            | 
|10.9        |  | Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990 (Incorporated herein by reference to Exhibit 10.44 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                                                                                                                           
|            | 
|10.10       |  | Ordinance No. 50-76 (Montgomery, Alabama) (Incorporated herein by reference to Exhibit 10.45 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File
No. 333-43339)).                                                                                                                                                                                                                                               



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|            |  |                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                 
|10.11       |  | Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990 (Incorporated herein by reference to Exhibit 10.45.1 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                         
|            | 
|10.12       |  | Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995 (Incorporated herein by reference to Exhibit 10.46 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                            
|            | 
|10.13       |  | Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997 (Incorporated herein by reference to Exhibit 10.49 to Knology Broadband, Inc.s Registration
Statement on Form S-4 (File No. 333-43339)).                                                                                                                  
|            | 
|10.14       |  | Ordinance No. 5999 (Augusta, Georgia) dated January 20, 1998 (Incorporated herein by reference to Exhibit 10.53 to Knology Broadband, Inc.s Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 333-43339)).                                                                                                 
|            | 
|10.15       |  | Ordinance No. 1723 (Panama City, Florida) dated March 10, 1998 (Incorporated herein by reference to Exhibit 10.54 to Knology Broadband, Inc.s Annual Report on Form 10-K
for the year ended December 31, 1997 (File No. 333-43339)).                                                                                               
|            | 
|10.16       |  | Franchise Agreement (Charleston County, South Carolina) dated December 15, 1998 (Incorporated herein by reference to Exhibit 10.31 to Knology Broadband, Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                              
|            | 
|10.17       |  | Ordinance No. 1998-47 (North Charleston, South Carolina) dated May 28, 1998 (Incorporated herein by reference to Exhibit 10.32 to Knology Broadband, Inc.s Annual Report
on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                  
|            | 
|10.18       |  | Ordinance No. 1998-77 (Charleston, South Carolina) dated April 28, 1998 (Incorporated herein by reference to Exhibit 10.33 to Knology Broadband, Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                      
|            | 
|10.19       |  | Ordinance No. 98-5 (Columbia County, Georgia) dated August 18, 1998 (Incorporated herein by reference to Exhibit 10.34 to Knology Broadband Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                           
|            | 
|10.20       |  | Network Access Agreement dated July 1, 1998 between SCANA Communications, Inc., f/k/a MPX Systems, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.36
to Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                           
|            | 
|10.21*      |  | Master Agreement for Internet Access Services dated January 2, 2002, by and between ITC/\DeltaCom, Inc. and Knology, Inc. (Incorporated herein by reference to Exhibit 10.21 to
Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 000-32647)).                                              
|            | 
|10.22*      |  | Collocation Agreement for Multiple Sites dated on or about June 1998 between Interstate FiberNet, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.38
to Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                            
|            | 
|10.23*      |  | Lease Agreement dated October 12, 1998 between Southern Company Services, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.39 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                    
|            | 
|10.24       |  | Facilities Transfer Agreement dated February 11, 1998 between South Carolina Electric and Gas Company and Knology Holdings, Inc., d/b/a Knology of Charleston (Incorporated herein by
reference to Exhibit 10.40 to Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).



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|            |  |                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                              
|10.25       |  | License Agreement dated March 3, 1998 between BellSouth Telecommunications, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.41 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).               
|            | 
|10.26       |  | Pole Attachment Agreement dated February 18, 1998 between Knology Holdings, Inc. and Georgia Power Company (Incorporated herein by reference to Exhibit 10.44 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                
|            | 
|10.27       |  | Assignment Agreement dated March 4, 1998 between Gulf Power Company and Knology of Panama City, Inc. (Incorporated herein by reference to Exhibit 10.46 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                      
|            | 
|10.28       |  | Registration Rights Agreement, dated November 6, 2002, by and between Knology, Inc. and SCANA Communications Holdings, Inc. (Incorporated herein by reference to Exhibit 10.53 to
Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-32647)).         
|            | 
|10.29       |  | Carrier Services Agreement dated July 16, 2001, between Business Telecom, Inc. and Knology, Inc. (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 000-32647)).                              
|            | 
|10.30*      |  | Reseller Services Agreement dated September 9, 1998 between Business Telecom, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.51 to Knology
Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).             
|            | 
|10.31*      |  | Private Line Services Agreement dated September 10, 1998 between BTI Communications Corporation and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.52 to
Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).
|            | 
|10.32       |  | Right of First Refusal and Option Agreement, Dated November 19, 1999 by and between Knology of Columbus, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to
Exhibit 10.60 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                      
|            | 
|10.33       |  | Services Agreement dated November 2, 1999 between Knology, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to Exhibit 10.61 to Knology, Inc.s Registration
Statement on Form S-1 (File No. 333-89179)).                                                                    
|            | 
|10.34       |  | Support Agreement, dated November 2, 1999 between Interstate Telephone Company, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to Exhibit 10.62 to Knology,
Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                               
|            | 
|10.35**     |  | Knology, Inc. Amended and Restated 2002 Long Term Incentive Plan (Incorporated by reference to Exhibit B to Knology, Inc.s Proxy Statement for the 2004 Annual Meeting of
Shareholders (File No. 000-32647)).                                                                                   
|            | 
|10.36       |  | Warrant Agreement, dated as of December 3, 1999, between Knology, Inc. and United States Trust Company of New York (including form of Warrant Certificate) (Incorporated herein by
reference to Exhibit 10.65 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).       
|            | 
|10.37       |  | Warrant Registration Rights Agreement, dated as of December 3, 1999, between Knology, Inc. and United States Trust Company of New York (Incorporated herein by reference to
Exhibit 10.66 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                           
|            | 
|10.38       |  | Knology, Inc. Spin-Off Plan (Incorporated herein by reference to Exhibit 10.71 to Knology, Inc.s Registration Statement on Form S-1 (File
No. 333-89179)).                                                                                                                                      



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|            |  |                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                        
|10.39       |  | Residual Note from Knology, Inc. to ITC Holding Company, Inc. (Incorporated herein by reference to Exhibit 10.74 to Knology, Inc.s Registration Statement on Form S-1 (File
No. 333-89179)).                                                                                                                                                                              
|            | 
|10.40       |  | Joint Ownership Agreement dated as of December 8, 1998, among ITC Service Company, Powertel, Inc., ITC/\DeltaCom Communications, Inc. and Knology Holdings, Inc. (Incorporated herein by
reference to Exhibit 10.48 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                              
|            | 
|10.41*      |  | On/Line Operating and License Agreement dated March 18, 1998 between Knology Holdings, Inc. and CableData, Inc. (Incorporated herein by reference to Exhibit 10.49 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                               
|            | 
|10.42*      |  | Dedicated Capacity Agreement between DeltaCom and Knology Holdings, Inc. dated August 22, 1997. (Incorporated herein by reference to Exhibit 10.50 to Knology, Inc.s Annual
Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                                               
|            | 
|10.43*      |  | Agreement for Telecommunications Services dated April 28, 1999 between ITC/\DeltaCom Communications, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to
Exhibit 10.51 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                          
|            | 
|10.44*      |  | Amendment to Master Capacity Lease dated November 1, 1999 between Interstate Fibernet, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.52 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                        
|            | 
|10.45       |  | Duct Sharing Agreement dated July 27, 1999 between Knology Holdings, Inc. and Interstate Fiber Network. (Incorporated herein by reference to Exhibit 10.53 to Knology, Inc.s
Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                                       
|            | 
|10.46       |  | Assumption of Lease Agreement dated November 9, 1999 between Knology Holdings, Inc. ITC Holding Company, Inc. and J. Smith Lanier II. (Incorporated herein by reference to
Exhibit 10.54 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                         
|            | 
|10.47       |  | Assumption of Lease Agreement dated November 9, 1999 among Knology Holdings, Inc. ITC Holding Company, Inc. and Midtown Realty, Inc. (Incorporated herein by reference to
Exhibit 10.55 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                          
|            | 
|10.48*      |  | Contract for Centrex Switching Services dated January 4, 1999 between Interstate Telephone Company and InterCall, Inc. (Incorporated herein by reference to Exhibit 10.56 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                        
|            | 
|10.49       |  | Sublease Agreement, dated as of December 30, 2003, by and between Verizon Media Ventures, Inc. and Knology Broadband of Florida, Inc. (Incorporated herein by reference from
Exhibit 10.53 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                       
|            | 
|10.50       |  | Transfer Agreement, dated January 7, 2004, by and between Pinellas County, Florida, Verizon Media Ventures Inc., Knology Broadband of Florida, Inc. and Knology New Media, Inc.
(Incorporated herein by reference from Exhibit 10.56 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                             
|            | 
|10.51       |  | City of St. Petersburg Ordinance No. 643-G, dated November 20, 2003, Approving an Extension of the Knology Broadband of Florida, Inc. Cable Television Franchise from
September 9, 2006 to September 9, 2009 (Incorporated herein by reference from Exhibit 10.57 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.52       |  | Transfer Agreement, dated December 16, 2003, by and between the City of Clearwater and Verizon Media Ventures Inc., Knology, Inc., Knology Broadband of Florida, Inc. and Knology New
Media, Inc. (Incorporated herein by reference from Exhibit 10.58 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                         
|            | 
|10.53       |  | MCI Internet Dedicated OC12 Burstable Agreement, dated June 11, 2003, by and between Knology, Inc. and MCI WORLDCOM Communications, Inc. (Incorporated herein by reference from
Exhibit 10.59 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                                  
|            | 
|10.54       |  | Consent to Assignment and Assumption, dated December 17, 2003, among Verizon Media Ventures Inc., Progress Energy Florida, Inc. and Knology Broadband of Florida, Inc. (Incorporated
herein by reference from Exhibit 10.60 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                    
|            | 
|10.55       |  | Lease, dated March 5, 2004, by and between Ted Alford and Knology, Inc. (Incorporated herein by reference from Exhibit 10.61 to Knology, Inc.s Annual Report on Form 10-K
for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                                                                                                   
|            | 
|10.56**     |  | Form of Stock Option Agreement (Incorporated herein by reference from Exhibit 10.62 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 (File No.
000-32647)).                                                                                                                                                                                                                                                                                            
|            | 
|10.57**     |  | Description of Named Executive Officer and Director Compensation Arrangements.                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|10.58       |  | $210,000,000 First Lien Credit Agreement, dated as of June 29, 2005, among Knology, Inc., as Borrower and the Lenders and Issuers Party thereto and Credit Suisse, Cayman Islands Branch, as
Administrative Agent and Collateral Agent and Credit Suisse, Cayman Islands Branch, as Sole Bookrunner and Sole Lead Arranger (Incorporated herein by reference from Exhibit 10.1 to Knology, Inc.s Quarterly Report on Form 10-Q for the period
ended June 30, 2005 (File No. 000-32647)).
|            | 
|10.59       |  | First Lien Pledge and Security Agreement, dated as of June 29, 2005, among Knology, Inc. as a Grantor and Each Other Grantor From Time to Time Party Thereto and Credit Suisse, Cayman Islands
Branch, as Collateral Agent (Incorporated herein by reference from Exhibit 10.2 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).                                                                                                
|            | 
|10.60       |  | First Lien Guaranty, dated as of June 29, 2005, by Knology, Inc., as Borrower, and each of the subsidiaries of Knology listed on the signature pages thereof or that becomes a party thereto
pursuant to Section 24 thereof (Incorporated herein by reference from Exhibit 10.3 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).                                                                                               
|            | 
|10.61       |  | $98,958,333 Second Lien Credit Agreement, dated as of June 29, 2005, among Knology, Inc., as Borrower and the Lenders Party thereto and Credit Suisse, Cayman Islands Branch, as Administrative
Agent and Collateral Agent and Credit Suisse, Cayman Islands Branch, as Sole Bookrunner and Sole Lead Arranger (Incorporated herein by reference from Exhibit 10.4 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June
30, 2005 (File No. 000-32647)).            
|            | 
|10.62       |  | Second Lien Pledge and Security Agreement, dated as of June 29, 2005, among Knology, Inc. as a Grantor and Each Other Grantor From Time to Time Party Thereto and Credit Suisse, Cayman Islands
Branch, as Collateral Agent (Incorporated herein by reference from Exhibit 10.5 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).                                                                                               



64



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                        
|10.63       |  | Second Lien Guaranty, dated as of June 29, 2005, by Knology, Inc., as Borrower, and each of the subsidiaries of Knology listed on the signature pages thereof or that becomes a party thereto
pursuant to Section 24 thereof (Incorporated herein by reference from Exhibit 10.6 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).
|            | 
|10.64       |  | Series AA Preferred Stock Purchase Agreement, dated as of May 4, 2005, by and among Knology, Inc. and the Purchasers named therein (Incorporated herein by reference from Exhibit 10.7 to
Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).                                                                                          
|            | 
|10.65       |  | Registration Rights Agreement, dated May 26, 2005, among Knology, Inc., certain holders of the Series AA Convertible Preferred Stock (Incorporated herein by reference to Exhibit 4.7 to
Knology Inc.s Registration Statement on Form S-3 (File No. 333-127129))                                                                                                                          
|            | 
|21.1        |  | Subsidiaries of Knology, Inc.                                                                                                                                                                                                                                                                                                                                                              
|            | 
|23.1        |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                          
|            | 
|31.1        |  | Certification of the Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rule 13a-14.                                                                                                                                                                                                                                                                             
|            | 
|31.2        |  | Certification of the Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rule 13a-14.                                                                                                                                                                                                                                                                             
|            | 
|32.1        |  | Statement of the Chief Executive Officer of Knology, Inc. pursuant to §18 U.S.C. S. 1350.                                                                                                                                                                                                                                                                                                  
|            | 
|32.2        |  | Statement of the Chief Financial Officer of Knology, Inc. pursuant to §18 U.S.C. S. 1350.                                                                                                                                                                                                                                                                                                  

---

|* | Confidential treatment has been requested pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. The copy on file as an exhibit omits the information
subject to the confidentiality request. Such omitted information has been filed separately with the Commission.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Compensatory plan or arrangement.
|-- | ---------------------------------



65



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##### Table of Contents

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.By:

/S/    RODGER L.
JOHNSONRodger L. JohnsonPresident and Chief Executive Officer(Date)

March 28, 2006


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.



|                                                       |  |                                                                                                                                  |  |               
|------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|SIGNATURE                                              |  | TITLE                                                                                                                            |  | DATE          
|                                                       |  |                                                                                                                                 
|/S/    CAMPBELL B. LANIER,
III Campbell B. Lanier, III |  | Chairman of the Board and Director                                                                                               |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    RODGER L.
JOHNSON Rodger L. Johnson             |  | President, Chief Executive Officer and Director (Principal executive officer)                                                    |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    M. TODD
HOLT M. Todd Holt                       |  | Chief Financial Officer, Vice President, Controller and Treasurer (Principal financial officer and principal accounting
officer) |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    ALAN A.
BURGESS Alan A. Burgess                 |  | Director                                                                                                                         |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/     DONALD W.
BURTON Donald W. Burton              |  | Director                                                                                                                         |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    EUGENE I.
DAVIS Eugene I. Davis                 |  | Director                                                                                                                         |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    O. GENE
GABBARD O. Gene Gabbard                 |  | Director                                                                                                                         |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    WILLIAM LAVERACK,
JR. William Laverack, Jr.     |  | Director                                                                                                                         |  | March 28, 2006
|                                                       |  |                                                                                                                                 
|/S/    WILLIAM H. SCOTT
III William H. Scott III       |  | Director                                                                                                                         |  | March 28, 2006



66



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##### Table of Contents

Index to Consolidated Financial Statements



|                                                                                                      |  |    
|----------------------------------------------------------------------------------------------------- |  | ---
|Knology, Inc.                                                                                         |  |    
|Report of Independent Registered Public Accounting Firm                                               |  | F-2
|Consolidated Balance Sheets as of December 31, 2004 and 2005                                          |  | F-3
|Consolidated Statements of Operations for the Years Ended December 31, 2003, 2004, and 2005           |  | F-4
|Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2003, 2004, and 2005 |  | F-5
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004, and 2005           |  | F-6
|Notes to Consolidated Financial Statements                                                            |  | F-7



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Knology, Inc.:

We have audited the accompanying consolidated balance sheets of Knology, Inc. and subsidiaries (the Company) as of
December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders equity and cash flows for each of the three years in the period ended December 31, 2005. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of
America.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

March 20, 2006



F-2



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                           |  | DECEMBER 31, |         
|                                                                                                                                                                           |  | 2004         |          |   | 2005 |  
|ASSETS                                                                                                                                                                     |  |              |          |   |      |   |          |  
|CURRENT ASSETS:                                                                                                                                                            |  |              |          |   |      |   |          |  
|Cash and cash equivalents (Note 2)                                                                                                                                         |  | $            | 6,082    |   |      | $ | 12,183   |  
|Restricted cash (Note 2)                                                                                                                                                   |  |              | 7,365    |   |      |   | 3,537    |  
|Short term investments (Note 2)                                                                                                                                            |  |              | 12,625   |   |      |   | 0        |  
|Accounts receivable, net of allowance for doubtful accounts of $724 and $886 as of December 31, 2004 and 2005,
respectively                                                |  |              | 18,924   |   |      |   | 19,283   |  
|Prepaid expenses and other                                                                                                                                                 |  |              | 2,735    |   |      |   | 1,767    |  
|Assets of business held for sale (Note 11)                                                                                                                                 |  |              | 887      |   |      |   | 0        |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                       |  |              | 48,618   |   |      |   | 36,770   |  
|                                                                                                                                                                           |  |             
|PROPERTY, PLANT AND EQUIPMENT:                                                                                                                                             |  |              |          |   |      |   |          |  
|System and installation equipment                                                                                                                                          |  |              | 602,731  |   |      |   | 612,082  |  
|Test and office equipment                                                                                                                                                  |  |              | 59,369   |   |      |   | 61,446   |  
|Automobiles and trucks                                                                                                                                                     |  |              | 9,766    |   |      |   | 9,620    |  
|Production equipment                                                                                                                                                       |  |              | 781      |   |      |   | 781      |  
|Land                                                                                                                                                                       |  |              | 4,006    |   |      |   | 4,006    |  
|Buildings                                                                                                                                                                  |  |              | 17,332   |   |      |   | 17,349   |  
|Construction and premise inventory                                                                                                                                         |  |              | 15,694   |   |      |   | 12,505   |  
|Leasehold improvements                                                                                                                                                     |  |              | 2,565    |   |      |   | 2,643    |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|                                                                                                                                                                           |  |              | 712,244  |   |      |   | 720,432  |  
|Less accumulated depreciation and amortization                                                                                                                             |  |              | (385,745 | ) |      |   | (434,794 | )
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Property, plant, and equipment, net                                                                                                                                        |  |              | 326,499  |   |      |   | 285,638  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|OTHER LONG-TERM ASSETS:                                                                                                                                                    |  |              |          |   |      |   |          |  
|Goodwill and intangible assets                                                                                                                                             |  |              | 41,142   |   |      |   | 41,059   |  
|Deferred issuance costs                                                                                                                                                    |  |              | 634      |   |      |   | 8,764    |  
|Interest rate cap agreement                                                                                                                                                |  |              | 0        |   |      |   | 1,537    |  
|Investments                                                                                                                                                                |  |              | 1,243    |   |      |   | 1,243    |  
|Other                                                                                                                                                                      |  |              | 451      |   |      |   | 523      |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total assets                                                                                                                                                               |  | $            | 418,587  |   |      | $ | 375,534  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  |              |          |   |      |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                       |  |              |          |   |      |   |          |  
|Current portion of notes payable                                                                                                                                           |  | $            | 179      |   |      | $ | 2,241    |  
|Accounts payable                                                                                                                                                           |  |              | 20,428   |   |      |   | 20,010   |  
|Accrued liabilities                                                                                                                                                        |  |              | 12,199   |   |      |   | 18,620   |  
|Unearned revenue                                                                                                                                                           |  |              | 11,841   |   |      |   | 10,134   |  
|Liabilities of business held for sale (Note 11)                                                                                                                            |  |              | 770      |   |      |   | 0        |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                                  |  |              | 45,417   |   |      |   | 51,005   |  
|                                                                                                                                                                           |  |             
|NONCURRENT LIABILITIES:                                                                                                                                                    |  |              |          |   |      |   |          |  
|Notes payable                                                                                                                                                              |  |              | 49,438   |   |      |   | 270,882  |  
|Unamortized investment tax credits                                                                                                                                         |  |              | 13       |   |      |   | 0        |  
|Senior unsecured notes, net of discount                                                                                                                                    |  |              | 237,096  |   |      |   | 0        |  
|Warrants (Note 4)                                                                                                                                                          |  |              | 354      |   |      |   | 285      |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total noncurrent liabilities                                                                                                                                               |  |              | 286,901  |   |      |   | 271,167  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                                                                          |  |              | 332,318  |   |      |   | 322,172  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|REDEEMABLE CONVERTIBLE PREFERRED STOCK                                                                                                                                     |  |              | 0        |   |      |   | 19,851   |  
|                                                                                                                                                                           |  |             
|COMMITMENTS AND CONTINGENCIES (NOTE 6)                                                                                                                                     |  |              |          |   |      |   |          |  
|                                                                                                                                                                           |  |             
|STOCKHOLDERS EQUITY:                                                                                                                                                      |  |              |          |   |      |   |          |  
|Preferred stock, $.01 par value per share; 199,000,000 shares authorized, 0 and 1,985,081 shares issued and outstanding at December 31,
2004 and 2005, respectively        |  |              | 0        |   |      |   | 0        |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, 0 and 0 shares issued and outstanding at December 31,
2004 and 2005, respectively         |  |              | 0        |   |      |   | 0        |  
|Common stock, $.01 par value per share; 200,000,000 shares authorized, 23,697,787 and 24,153,201 shares issued and outstanding at
December 31, 2004 and 2005, respectively |  |              | 237      |   |      |   | 242      |  
|Additional paid-in capital                                                                                                                                                 |  |              | 559,452  |   |      |   | 561,503  |  
|Accumulated deficit                                                                                                                                                        |  |              | (473,420 | ) |      |   | (528,234 | )
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                                                                 |  |              | 86,269   |   |      |   | 33,511   |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                                                 |  | $            | 418,587  |   |      | $ | 375,534  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  

See notes to consolidated financial statements.



F-3



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------ |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                           |  | YEAR ENDED DECEMBER 31, |           
|                                                                                           |  | 2003                    |            |   | 2004 |   |            | 2005 | 
|OPERATING REVENUES:                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Video                                                                                      |  | $                       | 71,879     |   |      | $ | 97,590     |      |  | $ | 103,039    |  
|Voice                                                                                      |  |                         | 70,117     |   |      |   | 72,438     |      |  |   | 77,602     |  
|Data services and other                                                                    |  |                         | 30,942     |   |      |   | 41,430     |      |  |   | 50,216     |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating revenues                                                                   |  |                         | 172,938    |   |      |   | 211,458    |      |  |   | 230,857    |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|OPERATING EXPENSES:                                                                        |  |                         |            |   |      |   |            |      |  |   |            |  
|Costs of services (excluding depreciation and amortization)                                |  |                         | 46,525     |   |      |   | 60,829     |      |  |   | 66,022     |  
|Selling, general and administrative expenses                                               |  |                         | 96,240     |   |      |   | 122,462    |      |  |   | 119,666    |  
|Depreciation and amortization                                                              |  |                         | 77,806     |   |      |   | 74,163     |      |  |   | 74,490     |  
|Loss on early extinguishment of debt                                                       |  |                         | 0          |   |      |   | 0          |      |  |   | 544        |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                   |  |                         | 220,571    |   |      |   | 257,454    |      |  |   | 260,722    |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|OPERATING LOSS                                                                             |  |                         | (47,633    | ) |      |   | (45,996    | )    |  |   | (29,865    | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|OTHER INCOME (EXPENSE):                                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Interest income                                                                            |  |                         | 379        |   |      |   | 720        |      |  |   | 1,074      |  
|Interest expense                                                                           |  |                         | (29,175    | ) |      |   | (31,062    | )    |  |   | (34,452    | )
|Gain on adjustment of warrants to market                                                   |  |                         | 929        |   |      |   | 535        |      |  |   | 37         |  
|Other (expense) income, net                                                                |  |                         | (12,288    | ) |      |   | 133        |      |  |   | (12        | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Total other expense                                                                        |  |                         | (40,155    | ) |      |   | (29,674    | )    |  |   | (33,353    | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|LOSS FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS                             |  |                         | (87,788    | ) |      |   | (75,670    | )    |  |   | (63,218    | )
|INCOME FROM DISCONTINUED OPERATIONS(includes gain on disposal of $8,320 in 2005) (Note 11) |  |                         | 0          |   |      |   | 106        |      |  |   | 8,404      |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|NET LOSS                                                                                   |  |                         | (87,788    | ) |      |   | (75,564    | )    |  |   | (54,814    | )
|PREFERRED STOCK DIVIDENDS                                                                  |  |                         | 0          |   |      |   | 0          |      |  |   | (588       | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                                               |  | $                       | (87,788    | ) |      | $ | (75,564    | )    |  | $ | (55,402    | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|LOSS FROM CONTINUING OPERATIONS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS              |  | $                       | (5.17      | ) |      | $ | (3.20      | )    |  | $ | (2.69      | )
|                                                                                           |  |                         |           
|INCOME FROM DISCONTINUED OPERATIONS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS          |  |                         | 0.00       |   |      |   | 0.01       |      |  |   | 0.35       |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                   |  | $                       | (5.17      | ) |      | $ | (3.19      | )    |  | $ | (2.33      | )
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                     |  |                         | 16,995,092 |   |      |   | 23,655,733 |      |  |   | 23,751,085 |  
|                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  

See notes to consolidated financial statements.



F-4



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(DOLLARS IN THOUSANDS)



|                                              |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   |         |  
|--------------------------------------------- |  | --------------- | - |  | ------------------ | ------ | ----------------------------- | ------ | ---------- | ------------------------- | - | ------ | ------------------- | ---------- | ------ | ------------------------- | - | --- | - |  | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|                                              |  | PREFERRED STOCK |   |  | COMMON STOCKSHARES |        | NON-VOTING COMMONSTOCK SHARES |        |            | ADDITIONALPAID-IN CAPITAL |   |        | ACCUMULATED DEFICIT |            |        | TOTALSTOCKHOLDERS EQUITY |  
|                                              |  | SHARES          |   |  | AMOUNT             |        |                               | SHARES |            | AMOUNT                    |   | SHARES |                     |            | AMOUNT |                           |   |     |  
|BALANCE, December 31, 2002                    |  | 154,826,180     |   |  | $                  | 1,548  |                               |        | 503,197    |                           | $ | 5      |                     | 0          |        |                           | $ | 0   |   |  | $ | 493,046 |   |  | $ | (310,068 | ) |  | $ | 184,531 |  
|Net loss                                      |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   | (87,788  | ) |  |   | (87,788 | )
|Exercise of stock options                     |  | 209,404         |   |  |                    | 2      |                               |        | 9,356      |                           |   | 1      |                     |            |        |                           |   |     |   |  |   | 15      |   |  |   |          |   |  |   | 18      |  
|Unrealized gain                               |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | 3       |   |  |   |          |   |  |   | 3       |  
|Non-cash stock option compensation            |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | 1,883   |   |  |   |          |   |  |   | 1,883   |  
|Reorganization fees (Note 8)                  |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | (50     | ) |  |   |          |   |  |   | (50     | )
|Initial public offering of common stock       |  | (155,035,584    | ) |  |                    | (1,550 | )                             |        | 20,092,877 |                           |   | 201    |                     | 2,170,127  |        |                           |   | 21  |   |  |   | 53,624  |   |  |   |          |   |  |   | 52,296  |  
|                                              |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2003                    |  | 0               |   |  | $                  | 0      |                               |        | 20,605,430 |                           | $ | 207    |                     | 2,170,127  |        |                           | $ | 21  |   |  | $ | 548,521 |   |  | $ | (397,856 | ) |  | $ | 150,893 |  
|                                              |  |                 |   |  |                    |        |                               |        |           
|Net loss                                      |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   | (75,564  | ) |  |   | (75,564 | )
|Exercise of stock options                     |  |                 |   |  |                    |        |                               |        | 9,776      |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   | 0       |  
|Unrealized loss                               |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | (2      | ) |  |   |          |   |  |   | (2      | )
|Non-cash stock option compensation            |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | 3,625   |   |  |   |          |   |  |   | 3,625   |  
|Initial public offering of common stock       |  |                 |   |  |                    |        |                               |        | 900,000    |                           |   | 9      |                     |            |        |                           |   |     |   |  |   | 7,264   |   |  |   |          |   |  |   | 7,273   |  
|Exercise of warrants                          |  |                 |   |  |                    |        |                               |        | 12,454     |                           |   |        |                     |            |        |                           |   |     |   |  |   | 44      |   |  |   |          |   |  |   | 44      |  
|Conversion of non-voting common stock         |  |                 |   |  |                    |        |                               |        | 2,170,127  |                           |   | 21     |                     | (2,170,127 | )      |                           |   | (21 | ) |  |   |         |   |  |   |          |   |  |   | 0       |  
|                                              |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2004                    |  | 0               |   |  | $                  | 0      |                               |        | 23,697,787 |                           | $ | 237    |                     | 0          |        |                           | $ | 0   |   |  | $ | 559,452 |   |  | $ | (473,420 | ) |  | $ | 86,269  |  
|                                              |  |                 |   |  |                    |        |                               |        |           
|Net loss                                      |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   | (54,814  | ) |  |   | (54,814 | )
|Exercise of stock options                     |  |                 |   |  |                    |        |                               |        | 71,183     |                           |   | 1      |                     |            |        |                           |   |     |   |  |   | 121     |   |  |   |          |   |  |   | 122     |  
|Non-cash stock option compensation            |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | 2,101   |   |  |   |          |   |  |   | 2,101   |  
|Preferred stock offering costs                |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | (348    | ) |  |   |          |   |  |   | (348    | )
|Preferred stock dividends                     |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   | (588    | ) |  |   |          |   |  |   | (588    | )
|Exercise of warrants                          |  |                 |   |  |                    |        |                               |        | 16,512     |                           |   | 1      |                     |            |        |                           |   |     |   |  |   | 33      |   |  |   |          |   |  |   | 34      |  
|Conversion of preferred stock to common stock |  |                 |   |  |                    |        |                               |        | 367,719    |                           |   | 3      |                     |            |        |                           |   |     |   |  |   | 732     |   |  |   |          |   |  |   | 735     |  
|                                              |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2005                    |  | 0               |   |  | $                  | 0      |                               |        | 24,153,201 |                           | $ | 242    |                     | 0          |        |                           | $ | 0   |   |  | $ | 561,503 |   |  | $ | (528,234 | ) |  | $ | 33,511  |  
|                                              |  |                 |   |  |                    |        |                               |        |            |                           |   |        |                     |            |        |                           |   |     |   |  |   |         |   |  |   |          |   |  |   |         |  

See notes to consolidated financial statements.



F-5



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##### Table of Contents

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)



|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                |  | YEAR ENDED DECEMBER 31, |        
|                                                                                |  | 2003                    |         |   | 2004 |   |          | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                         |         |   |      |   |          |      |  |   |          |  
|Net loss                                                                        |  | $                       | (87,788 | ) |      | $ | (75,564  | )    |  | $ | (54,814  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                         |         |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                   |  |                         | 77,806  |   |      |   | 74,163   |      |  |   | 74,490   |  
|Non-cash stock option compensation                                              |  |                         | 1,883   |   |      |   | 3,625    |      |  |   | 2,101    |  
|Write off of investment                                                         |  |                         | 12,406  |   |      |   | 0        |      |  |   | 0        |  
|Gain on discontinued operations                                                 |  |                         | 0       |   |      |   | 0        |      |  |   | (8,404   | )
|Accretion of second lien term loan                                              |  |                         | 0       |   |      |   | 0        |      |  |   | 332      |  
|Non-cash bank loan interest expense                                             |  |                         | 0       |   |      |   | 0        |      |  |   | 1,226    |  
|Non-cash interest rate cap interest income                                      |  |                         | 0       |   |      |   | 0        |      |  |   | (267     | )
|Non-cash bond interest expense                                                  |  |                         | 26,582  |   |      |   | 12,059   |      |  |   | 0        |  
|Loss on early extinguishment of debt                                            |  |                         | 0       |   |      |   | 0        |      |  |   | 544      |  
|Provision for bad debt                                                          |  |                         | 4,714   |   |      |   | 4,479    |      |  |   | 4,080    |  
|(Gain) loss on disposition of assets                                            |  |                         | (14     | ) |      |   | 32       |      |  |   | 25       |  
|Gain on adjustment of warrants to market                                        |  |                         | (929    | ) |      |   | (535     | )    |  |   | (37      | )
|Changes in operating assets and liabilities:                                    |  |                         |         |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                             |  |                         | (9,063  | ) |      |   | (4,120   | )    |  |   | (4,439   | )
|Prepaid expenses and other                                                      |  |                         | 64      |   |      |   | (895     | )    |  |   | 91       |  
|Accounts payable                                                                |  |                         | (209    | ) |      |   | 4,908    |      |  |   | (419     | )
|Accrued liabilities                                                             |  |                         | 695     |   |      |   | 4,043    |      |  |   | 6,420    |  
|Unearned revenue                                                                |  |                         | 3,365   |   |      |   | 207      |      |  |   | (1,706   | )
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Total adjustments                                                               |  |                         | 117,300 |   |      |   | 97,966   |      |  |   | 74,037   |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities from continuing operations            |  |                         | 29,512  |   |      |   | 22,402   |      |  |   | 19,223   |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash used in operating activities from discontinued operations              |  |                         | 0       |   |      |   | (139     | )    |  |   | (405     | )
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                       |  |                         | 29,512  |   |      |   | 22,263   |      |  |   | 18,818   |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                         |         |   |      |   |          |      |  |   |          |  
|Capital expenditures                                                            |  |                         | (35,533 | ) |      |   | (63,592  | )    |  |   | (31,613  | )
|Purchase of short term investments                                              |  |                         | (50,000 | ) |      |   | (210,051 | )    |  |   | (4,000   | )
|Proceeds from sale of short term investments                                    |  |                         | 10,000  |   |      |   | 237,426  |      |  |   | 16,625   |  
|Franchise and other intangible expenditures                                     |  |                         | (407    | ) |      |   | (288     | )    |  |   | (295     | )
|Proceeds from sale of property                                                  |  |                         | 378     |   |      |   | 169      |      |  |   | 170      |  
|Cash (pledged) returned as security                                             |  |                         | (1,520  | ) |      |   | (4,605   | )    |  |   | 3,828    |  
|Acquisition of Verizon Media                                                    |  |                         | (18,841 | ) |      |   | 0        |      |  |   | 0        |  
|Investment in Grande                                                            |  |                         | (1,070  | ) |      |   | 0        |      |  |   | 0        |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities from continuing operations                |  |                         | (96,993 | ) |      |   | (40,941  | )    |  |   | (15,285  | )
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash provided by investing activities from discontinued operations          |  |                         | 0       |   |      |   | 0        |      |  |   | 9,730    |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                           |  |                         | (96,993 | ) |      |   | (40,941  | )    |  |   | (5,555   | )
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                         |         |   |      |   |          |      |  |   |          |  
|Principal payments on debt and short-term borrowings                            |  |                         | (3,373  | ) |      |   | (2,719   | )    |  |   | (295,992 | )
|Proceeds from long-term debt facility                                           |  |                         | 0       |   |      |   | 0        |      |  |   | 280,000  |  
|Expenditures related to issuance of debt                                        |  |                         | 0       |   |      |   | (370     | )    |  |   | (9,675   | )
|Proceeds from issuance of convertible preferred stock                           |  |                         | 0       |   |      |   | 0        |      |  |   | 20,000   |  
|Expenditures related to issuance of convertible preferred stock                 |  |                         | 0       |   |      |   | 0        |      |  |   | (348     | )
|Purchase of interest rate cap                                                   |  |                         | 0       |   |      |   | 0        |      |  |   | (1,270   | )
|Net proceeds from public offering                                               |  |                         | 48,788  |   |      |   | 7,273    |      |  |   | 0        |  
|Stock options exercised                                                         |  |                         | 18      |   |      |   | 0        |      |  |   | 122      |  
|Warrants exercised                                                              |  |                         | 0       |   |      |   | 1        |      |  |   | 1        |  
|Expenditures related to reorganization                                          |  |                         | (50     | ) |      |   | 0        |      |  |   | 0        |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                             |  |                         | 45,383  |   |      |   | 4,185    |      |  |   | (7,162   | )
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            |  |                         | (22,098 | ) |      |   | (14,493  | )    |  |   | 6,101    |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  |  |                         | 42,673  |   |      |   | 20,575   |      |  |   | 6,082    |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                        |  | $                       | 20,575  |   |      | $ | 6,082    |      |  | $ | 12,183   |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |                         |         |   |      |   |          |      |  |   |          |  
|Cash paid during the year for interest                                          |  | $                       | 2,589   |   |      | $ | 16,664   |      |  | $ | 30,906   |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Detail of investments and acquisitions:                                         |  |                         |         |   |      |   |          |      |  |   |          |  
|Property, plant and equipment                                                   |  |                         | 21,149  |   |      |   | 0        |      |  |   | 0        |  
|Intangible assets & other                                                       |  |                         | 1,201   |   |      |   | 0        |      |  |   | 0        |  
|Warrants issued                                                                 |  |                         | (3,509  | ) |      |   | 0        |      |  |   | 0        |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Net cash paid for acquisitions                                                  |  | $                       | 18,841  |   |      | $ | 0        |      |  | $ | 0        |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Non-cash financing activities: Debt acquired in capital lease transactions      |  | $                       | 0       |   |      | $ | 1,812    |      |  | $ | 1,303    |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  
|Preferred stock dividend paid in kind                                           |  | $                       | 0       |   |      | $ | 0        |      |  | $ | 588      |  
|                                                                                |  |                         |         |   |      |   |          |      |  |   |          |  

See notes to consolidated financial statements



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##### Table of Contents

Notes to Consolidated Financial Statements

December 31, 2003, 2004 and 2005

(dollars in thousands, except share data)

1.
Organization, Nature of Business, and Basis of Presentation

Organization and Nature of Business

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

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

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

Basis of presentation

The consolidated financial statements of Knology have been prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP). The statements include the accounts of the Companys wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in which the Company does not exercise a
significant controlling financial interest are accounted for using the cost method of accounting.

During the second quarter of 2005, the
Company revised the classification of changes in restricted cash balances to present such changes as an investing activity. We previously presented such changes as financing activity. In the accompanying Consolidated Statements of Cash Flows for the
years ended December 31, 2003 and 2004, we reclassified changes in restricted cash balances to be consistent with our 2005 presentation, which resulted in a $1,520 and $4,605 decrease in investing cash flows and a corresponding increase in
financing cash flows for 2003 and 2004, respectively.

2. Summary of Significant Accounting Policies

Accounting estimates

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



F-7



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##### Table of Contents

Cash and cash equivalents

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

As of December 31, 2004, the Company had
$7,365 of cash that is restricted in use, all of which is pledged as collateral for amounts potentially payable under certain insurance, lease and surety bond agreements.

As of December 31, 2005, the Company has $3,537 of cash that is restricted in use. Of this amount, $1,007 is in escrow in connection with the sale of discontinued operations (see Note 11). Also, the Company has
pledged $2,530 of cash as collateral for amounts potentially payable under certain insurance, lease and surety bond agreements.

Short term investments

The Company follows Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No 115). SFAS No. 115 mandates that a determination be made of the appropriate classification for equity securities with a readily
determinable fair value and all debt securities at the time of purchase and a re-evaluation of such designation as of each balance sheet date.

Short term investments consist of adjustable rate securities and are classified as available-for-sale. These investments are carried at fair value and any unrealized gains and losses are reported as a separate component of
stockholders equity. Realized gains and losses are included in interest income. The cost of securities sold is based on the specific identification method. All adjustable rate securities held as of December 31, 2004 were sold during the
first quarter of 2005.

The available-for-sale securities at December 31, 2004 included the following:



|                |  |                   |       
|--------------- |  | ----------------- | ------
|                |  | December 31, 2004
|Amortized Cost  |  | $                 | 12,624
|Fair Value      |  | $                 | 12,625
|Unrealized Gain |  | $                 | 1     

Allowance for doubtful accounts

The allowance for doubtful accounts represents the Companys best estimate of probable losses in the accounts receivable balance. The allowance is
based on known troubled accounts, historical experience and other currently available evidence. Activity in the allowance for doubtful accounts is as follows:



|                       |  |                                |       |                               |   |                               |  |                          |       |  |   |      
|---------------------- |  | ------------------------------ | ----- | ----------------------------- | - | ----------------------------- |  | ------------------------ | ----- |  | - | -----
|Year ended December 31 |  | Balance at beginning of
period |       | Charged to operating expenses |   | Write-offs, net of recoveries |  | Balance at end of period
|2003                   |  | $                              | 2,194 |                               | $ | 4,714                         |  | $                        | 5,459 |  | $ | 1,449
|2004                   |  | $                              | 1,449 |                               | $ | 4,479                         |  | $                        | 5,204 |  | $ | 724  
|2005                   |  | $                              | 724   |                               | $ | 4,080                         |  | $                        | 3,918 |  | $ | 886  



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##### Table of Contents

Property, plant, and equipment

Property, plant, and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, commencing when the asset is installed or
placed in service. Maintenance, repairs, and renewals are charged to expense as incurred. The cost and accumulated depreciation of property and equipment disposed of are removed from the related accounts, and any gain or loss is included in or
deducted from income. Depreciation and amortization (excluding telephone plant which is depreciated by composite rates regulated by the Public Service Commission), are provided over the estimated useful lives as follows:



|                                  |  |      
|--------------------------------- |  | -----
|                                  |  | Years
|Buildings                         |  | 25   
|System and installation equipment |  | 3-10 
|Production equipment              |  | 9    
|Test and office equipment         |  | 3-7  
|Automobiles and trucks            |  | 5    
|Leasehold improvements            |  | 5-25 

Depreciation expense for the years ended December 31, 2003, 2004 and 2005 was $77,438,
$73,809 and $73,581, respectively. Inventories are valued at the lower of cost or market (determined on a weighted average basis) and include customer premise equipment and certain plant construction materials. These items are transferred to system
and installation equipment when installed.

Goodwill and intangible assets

The Company constructs and operates its cable systems under non-exclusive cable franchises that are granted by state or local governmental authorities for
varying lengths of time. As of December 31, 2005, the Company has obtained these franchises through acquisitions of cable systems accounted for as purchase business combinations and construction of new cable systems.

Summarized below are the carrying values and accumulated amortization of intangible assets that will continue to be amortized under SFAS 142, as well as
the carrying value of goodwill, which is no longer amortized.



|                                                                  |  |      |        |      |   |                             |  |    
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | --------------------------- |  | ---
|                                                                  |  | 2004 |        | 2005 |   | Amortization Period (Years)
|Customer base                                                     |  | $    | 441    |      | $ | 460                         |  | 2-3
|Other                                                             |  |      | 356    |      |   | 632                         |  | 1-3
|                                                                  |  |      |        |      |   |                             |  |    
|Gross carrying value of intangible assets subject to amortization |  |      | 797    |      |   | 1,092                       |  |    
|Less accumulated amortization                                     |  |      | 489    |      |   | 867                         |  |    
|                                                                  |  |      |        |      |   |                             |  |    
|Net carrying value                                                |  |      | 308    |      |   | 225                         |  |    
|Goodwill                                                          |  |      | 40,834 |      |   | 40,834                      |  |    
|                                                                  |  |      |        |      |   |                             |  |    
|Total goodwill and intangibles                                    |  | $    | 41,142 |      | $ | 41,059                      |  |    
|                                                                  |  |      |        |      |   |                             |  |    

Goodwill represents the excess of the cost of businesses acquired over fair value or net
identifiable assets at the date of acquisition. Goodwill is subject to a periodic impairment assessment by applying a fair value test based upon a two-step method. The first step of the process compares the fair value of each reporting unit with the
carrying value of the reporting unit, including any goodwill. Each geographic operating unit is deemed to be a reporting unit for testing purposes. The Company utilizes a discounted cash flow valuation methodology to determine the fair value of each
reporting unit. If the fair value of each reporting unit exceeds the carrying amount of the reporting unit, goodwill is deemed not to be impaired in which case the second step in the process



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is unnecessary. If the carrying amount exceeds fair value, the Company performs the second step to measure the amount of impairment loss. Any impairment loss
is measured by comparing the implied fair value of goodwill, calculated per FASB Statement No. 142, Accounting for Goodwill and Other Intangible Assets (SFAS No. 142), with the carrying amount of goodwill at the
reporting unit, with the excess of the carrying amount over the fair value recognized as an impairment loss. The Company has adopted January 1 as the calculation date and has evaluated these assets as of January 1, 2004, 2005 and 2006, and
no impairment was identified.

Amortization expense related to intangible assets was $358, $278 and $378 for the years ended
December 31, 2003, 2004 and 2005, respectively.

Scheduled amortization of intangible assets for the next five years is as follows:



|     |  |   |    
|---- |  | - | ---
|2006 |  | $ | 203
|2007 |  |   | 18 
|2008 |  |   | 4  
|     |  |   |    
|     |  | $ | 225
|     |  |   |    

Deferred issuance costs

Deferred issuance costs include costs associated with the issuance of debt and the consummation of credit facilities (Note 4). Deferred issuance costs and the related useful lives and accumulated amortization at
December 31, 2004 and 2005 are as follows:



|                                           |  |      |      |   |      |   |        |                             |  |    
|------------------------------------------ |  | ---- | ---- | - | ---- | - | ------ | --------------------------- |  | ---
|                                           |  | 2004 |      |   | 2005 |   |        | Amortization Period (Years)
|Previous deferred issuance costs           |  | $    | 871  |   |      | $ | 634    |                             |  | 8  
|2005 Expenditures related to new bank loan |  |      | 0    |   |      |   | 9,675  |                             |  | 5-6
|Accumulated amortization                   |  |      | (237 | ) |      |   | (1,001 | )                           |  |    
|Loss on early extinguishment of debt       |  |      | 0    |   |      |   | (544   | )                           |  |    
|                                           |  |      |      |   |      |   |        |                             |  |    
|Deferred issuance costs, net               |  | $    | 634  |   |      | $ | 8,764  |                             |  |    
|                                           |  |      |      |   |      |   |        |                             |  |    

Derivative Financial Instruments

The Company has adopted FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133). This statement requires that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. In July 2005, the Company entered into an interest rate cap agreement with Credit Suisse First Boston International with a notional amount of $280 million, covering the first and second
liens, to cap our adjustable LIBOR rate at 5%, mitigating interest rate risk on the loans. The Company paid $1.3 million for this cap agreement, which became effective July 29, 2005 and terminates July 29, 2008. The Company did not
designate the cap agreement as an accounting hedge under SFAS No. 133, accordingly changes in fair value of the cap agreement are recorded through earnings as derivative gains/(losses) and are classified within interest expense in the
accompanying consolidated statement of operations for the year ended December 31, 2005. The cap agreement had a fair value of $1.5 million as of December 31, 2005, resulting in a derivative gain of $267.

Valuation of long-lived assets

Under FASB Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Company reviews long-lived assets for impairment when circumstances indicate the



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carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is
determined not to be recoverable, a write-down to fair value is recorded. The Company has evaluated these assets as of December 31, 2005, and no impairment was identified.

Cost of services

Cost of services related to video consists primarily of monthly fees to the
National Cable Television Cooperative and other programming providers and is generally based on the average number of subscribers to each program. Cost of services related to voice and data services and other consists primarily of transport cost and
network access fees specifically associated with each of these revenue streams.

Stock based compensation

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure, which amends FASB
Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, this Statement amends
APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. SFAS No. 148 is to be applied for financial statements for fiscal years ending after December 15,
2002. In December 2002, the Company elected to adopt the recognition provisions of SFAS No. 123 which is considered the preferable accounting method for stock-based employee compensation. The Company also elected to report the change in
accounting principle using the prospective method in accordance with SFAS No. 148. Under the prospective method, the recognition of compensation costs is applied to all employee awards granted, modified or settled after the beginning of the
fiscal year in which the recognition provisions are first applied. As a result, the Company recorded $1,883, $3,625 and $2,101 of non-cash stock option compensation expense for the years ended December 31, 2003, 2004 and 2005, respectively. The
Company will continue to provide pro forma net income and earnings per share information related to prior awards.

The following table
illustrates the effect on net loss if Knology had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:



|                                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                           |  | Year ended December 31, |           
|                                                                                                           |  | 2003                    |            |   | 2004 |   |            | 2005 | 
|Net loss, as reported                                                                                      |  | $                       | (87,788    | ) |      | $ | (75,564    | )    |  | $ | (55,402    | )
|Add: Stock-based compensation, as reported                                                                 |  |                         | 1,883      |   |      |   | 3,625      |      |  |   | 2,101      |  
|Deduct: Total stock-based compensation determined under fair value based method for all awards, net of tax |  |                         | (1,913     | ) |      |   | (3,625     | )    |  |   | (2,101     | )
|                                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Pro forma net loss                                                                                         |  | $                       | (87,818    | ) |      | $ | (75,564    | )    |  | $ | (55,402    | )
|                                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share attributed to common shareholders                                     |  | $                       | (5.17      | ) |      | $ | (3.19      | )    |  | $ | (2.33      | )
|Basic and diluted weighted average number of common shares outstanding                                     |  |                         | 16,995,922 |   |      |   | 23,655,733 |      |  |   | 23,751,085 |  

Refer to new accounting pronouncement section where Company adopted SFAS
No. 123R January 1, 2006, with no material impact.



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Investments

Investments and equity ownership in associated companies consisted of the following at December 31, 2004 and 2005:



|                                                                                   |  |      |       |      |   |      
|---------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                                                   |  | 2004 |       | 2005
|Nonmarketable investments, at cost:                                                |  |      |       |      |   |      
|Grande Communications (Grande) common stock, 10,946,556 shares in 2004 and 2005. |  | $    | 1,243 |      | $ | 1,243

At December 31, 2005, the Company, through its wholly owned subsidiaries, owned approximately
2.4% of Grande. The Companys investment in Grande is accounted for under the cost method of accounting. The Company determined that the adverse changes in business conditions at Grande Communication, Inc. were other than temporary and recorded
a loss of $12,406 which is included in Other Income (Expense) during the third quarter of 2003 on the investment in Grande. In the fourth quarter of 2003 the Company invested an additional $1,069 in Grande.

Accrued liabilities

Accrued liabilities at
December 31, 2004 and 2005 consist of the following:



|                       |  |      |        |      |   |       
|---------------------- |  | ---- | ------ | ---- | - | ------
|                       |  | 2004 |        | 2005
|Accrued trade expenses |  | $    | 4,811  |      | $ | 7,251 
|Accrued property taxes |  |      | 2,297  |      |   | 1,818 
|Accrued compensation   |  |      | 2,315  |      |   | 4,519 
|Accrued interest       |  |      | 2,776  |      |   | 5,032 
|                       |  |      |        |      |   |       
|Total                  |  | $    | 12,199 |      | $ | 18,620
|                       |  |      |        |      |   |       

Fair Value of Financial Instruments

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. The carrying value of long-term debt, based on borrowing rates currently available to the Company, is a reasonable estimation of fair value due to the variable nature of the interest
rates on the obligations.

Revenue recognition

Knology accounts for the revenue, costs and expense related to residential cable services (including video, voice, data and other services) as the related services are performed in accordance with SFAS No. 51 Financial Reporting
by Cable Television Companies. Installation revenue for residential cable services is recognized to the extent of direct selling costs incurred. Direct selling costs have exceeded installation revenue in all reported periods. Credit risk is
managed by disconnecting services to customers who are delinquent.

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

The Company generates recurring revenues for its broadband offerings of video, voice and data and other services. Revenues generated from
these services primarily consists of a fixed monthly fee for access to cable programming, local phone services and enhanced services and access to the Internet. Additional fees are charged



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for services including pay-per-view movies, events such as boxing matches and concerts, long distance service and cable modem rental. Revenues are recognized
as services are provided and advance billings or cash payments received in advance of services performed are recorded as unearned revenue.

Advertising
costs

The Company expenses all advertising costs as incurred. Approximately $5,143, $6,370 and $5,189 of advertising expense are
recorded in the Companys consolidated statements of operations for the years ended December 31, 2003, 2004, and 2005, respectively.

Sources
of supplies

The Company purchases customer premise equipment and plant materials from outside vendors. Although numerous suppliers
market and sell customer premise equipment and plant materials, the Company currently purchases each customer premise component from a single vendor and has several suppliers for plant materials. If the suppliers are unable to meet the
Companys needs as it continues to build out its network infrastructure, then delays and increased costs in the expansion of the Companys network could result, which would adversely affect operating results.

Credit risk

The Companys accounts receivable
potentially subject the Company to credit risk, as collateral is generally not required. The Companys risk of loss is limited due to advance billings to customers for services and the ability to terminate access on delinquent accounts. The
potential for material credit loss is mitigated by the large number of customers with relatively small receivable balances. The carrying amount of the Companys receivables approximates their fair values.

Income taxes

The Company utilizes the liability
method of accounting for income taxes, as set forth in SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax benefit represents the change in the deferred tax asset and liability balances (Note 7). As of February 10, 2004, Valley
Telephone Company was converted from a corporation to a limited liability company in order to distribute all of its shares of common stock of Knology Broadband, Inc. to Knology, Inc. in a tax free distribution.

Net loss per share

The Company follows SFAS
No. 128, Earnings Per Share. That statement requires the disclosure of basic net loss per share and diluted net loss per share. Basic net loss per share is computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted net loss per share gives effect to all potentially dilutive securities. The effect of the Companys warrants (1,090,733 and 1,074,221 in 2004 and 2005,
respectively), stock options (2,026,285 and 3,026,117 shares in 2004 and 2005, respectively using the treasury stock method) and preferred stock (0 and 1,985,081 shares in 2004 and 2005, respectively) were not included in the computation of diluted
EPS as their effect was antidilutive.

Fair Value of Financial Instruments

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



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The carrying value of long-term debt, based on borrowing rates currently available to the Company, is a reasonable estimation of the fair value due to the
variable nature of the interest rates on the obligations.

New accounting pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
Statement No.3. This Statement replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in an accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does
not include specific transition provisions. SFAS No. 154 is effective for accounting changes and error corrections occurring in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006,
which resulted in no material impact to its financial position or results of operations.

In March 2005, the FASB issued FASB
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation of an entity to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not he
within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability
for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The Company adopted FIN 47 effective in 2005, which resulted in no material impact to its financial position
or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R 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, beginning with the first interim or annual period after
June 15, 2005, with early adoption encouraged. In addition, SFAS No. 123R will cause unrecognized expense related to options vesting after the date of initial adoption to be recognized as a charge to results of operations over the
remaining vesting period. In December 2002, the Company elected to adopt the recognition provisions of SFAS No. 123 which is considered the preferable accounting method for stock-based employee compensation. The Company also elected to report
the change in accounting principle using the prospective method in accordance with SFAS No. 148. Under the prospective method, the recognition of compensation costs is applied to all employee awards granted, modified or settled after the
beginning of the fiscal year in which the recognition provisions are first applied. The Company adopted SFAS No. 123R on January 1, 2006, and because the fair value recognition provisions of SFAS No. 123 were adopted in 2003, there
was no material impact to its results of operations or financial position.

At the March 2004 Emerging Issues Task Force (EITF)
meeting, the Task Force reached a consensus on the Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. Issue 03-1 defines the terms otherthan-temporary and
other-than-temporary impairment and establishes a three-step impairment model applicable to debt and equity securities that are within the scope of SFAS 115. At the November 2003 EITF meeting, the Task Force reached a consensus effective for fiscal
years ending after December 15, 2003 on quantitative disclosures. Except for disclosure requirements already in place, the Issue 03-1 consensus will be effective prospectively for all relevant current and future investments in reporting periods
beginning after June 15, 2004. The Company adopted EITF Issue No. 03-1 disclosure requirements for the fiscal year ended December 31, 2003 and the adoption of future requirements of EITF Issue No. 03-1 did not impact the
Companys results of operations or financial position.



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3. Employee Benefit Plan

The Company has a 401(k) Profit Sharing Plan (the Plan) for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the Plan on the first day of employment.
The Plan provides for a matching contribution at the discretion of the board up to 8% of eligible contributions. The Company contributions for the years ended December 31, 2003, 2004 and 2005 were $735, $887 and $1,006, respectively.

4. Long-Term Debt

On June 29,
2005, the Company entered into a first lien credit agreement and second lien credit agreement providing the Company with aggregate cash proceeds of $280 million. Credit Suisse acted as administrative agent and sole lead arranger. These proceeds,
together with cash on hand, were used to repay all amounts outstanding under our credit facilities with Wachovia Bank, National Association and Cobank, ACB and to redeem our 12% senior notes due 2009, which were redeemed on July 29, 2005. The
First Lien Credit Agreement also provides a five year senior secured revolving loan and letter of credit facility up to $25 million, of which no amount was outstanding as of December 31, 2005. The second lien was purchased at a discount of 4%
for $95 million, which accretes up to a face amount of $99 million on June 29, 2011.

The estimated fair value of the Companys
variable-rate debt is subject to the effects of interest rate risk. On December 31, 2005, the estimated fair value of that debt, based on quoted market prices, was approximately $278 million, compared to a carrying amount of $270 million.

Long-term debt at December 31, 2004 and 2005 consists of the following:



|                                                                                                                                                                                                                                                                                                                                                                                        |  |      |         |      |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                        |  | 2004 |         | 2005
|First Lien term loan, at a rate of LIBOR plus 5.5%, with 1% annual principal amortization paid quarterly ($925 for 2005), interest payable
quarterly with final principal and any unpaid interest due June 29, 2010                                                                                                                                                                     |  | $    | 0       |      | $ | 173,675
|Second Lien term loan, with a face amount of $99,000, at a rate of LIBOR plus 10% (8.5% cash and 1.5% PIK, $769 for 2005), interest payable
quarterly, with principal and any unpaid interest due June 29, 2011                                                                                                                                                                         |  |      | 0       |      |   | 96,100 
|Senior Unsecured Notes including accrued interest, with a face value of $194,659 bearing interest in-kind at 13% from November 6, 2002 to
November 30, 2004, interest payable semiannually at 12% as of November 30, 2004, with principal and unpaid interest due November 30, 2009 (Repaid in July 2005 from a portion of the proceeds of the first and second liens and cash on
hand) |  |      | 237,096 |      |   | 0      
|Senior secured Wachovia credit facility, at a rate of LIBOR plus 3.75%, interest payable quarterly with principal and any unpaid interest due
September 10, 2007 (Repaid in June 2005 from a portion of the proceeds of the first and second liens and cash on hand)                                                                                                                    |  |      | 15,465  |      |   | 0      
|Senior secured CoBank term credit facility, at a rate of LIBOR plus 3.5%, interest payable quarterly, principal payments due quarterly
beginning Jan 2007 with final principal and any unpaid interest due June 30, 2009 (Repaid in June 2005 from a portion of the proceeds of the first and second liens and cash on hand)                                                            |  |      | 31,895  |      |   | 0      
|Capitalized lease obligations, at rates between 7% and 8%, with monthly principal and interest payments through October 2012                                                                                                                                                                                                                                                            |  |      | 2,257   |      |   | 3,348  
|                                                                                                                                                                                                                                                                                                                                                                                        |  |      |         |      |   |        
|                                                                                                                                                                                                                                                                                                                                                                                        |  |      | 286,713 |      |   | 273,123
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                 |  |      | 179     |      |   | 2,241  
|                                                                                                                                                                                                                                                                                                                                                                                        |  |      |         |      |   |        
|                                                                                                                                                                                                                                                                                                                                                                                        |  | $    | 286,534 |      | $ | 270,882
|                                                                                                                                                                                                                                                                                                                                                                                        |  |      |         |      |   |        



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Following are maturities of long-term debt for each of the next five years as of December 31, 2005:



|           |  |   |        
|---------- |  | - | -------
|2006       |  | $ | 2,241  
|2007       |  |   | 2,316  
|2008       |  |   | 2,357  
|2009       |  |   | 2,401  
|2010       |  |   | 166,874
|Thereafter |  |   | 96,934 
|           |  |   |        
|Total      |  | $ | 273,123
|           |  |   |        

Both credit facilities are guaranteed by all of our subsidiaries. The credit facilities are also
secured by first and second liens on all of our assets and the assets of our guarantor subsidiaries. The parent company has no independent assets or operations, the guarantee are full and unconditional and joint and several and any subsidiaries of
the parent company other than the subsidiary guarantors are minor.

The credit agreements both contain 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 under the first lien facilities or second lien facility, as applicable, with excess cash flow, proceeds from asset sales, 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 first lien debt to EBITDA (as defined in the credit agreements), total debt to EBITDA and EBITDA to cash interest.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

The credit agreements also include customary events of default, including but not limited to:



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



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



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



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



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



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



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



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



| |  |  | change of control;
| | - |  | ------------------



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



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



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



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##### Table of Contents

As of December 31, 2005, the Company was in compliance with all of its debt covenants.

The Company had outstanding warrants of $354 and $285 at December 31, 2004 and 2005, respectively. Knology adjusts the carrying value of the
warrants based on the closing price of the Companys common stock at the end of each reporting period. For the year ended December 31, 2003, 2004 and 2005 the company recorded a gain of $929, $535 and $37, respectively.

5. Operating and Capital Leases

The Company leases
office space, utility poles, and other assets for varying periods. Leases that expire are generally expected to be renewed or replaced by other leases. Total rental expense for all operating and capital leases was approximately $2,608, $3,205 and
$2,724 for the years ended December 31, 2003, 2004, and 2005, respectively. Future minimum rental payments required under the operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2005 are as follows:



|                                                    |  |                   |       |                 |   |       
|--------------------------------------------------- |  | ----------------- | ----- | --------------- | - | ------
|                                                    |  | CapitalizedLeases |       | OperatingLeases
|2006                                                |  | $                 | 641   |                 | $ | 2,112 
|2007                                                |  |                   | 682   |                 |   | 1,680 
|2008                                                |  |                   | 684   |                 |   | 1,312 
|2009                                                |  |                   | 686   |                 |   | 958   
|2010                                                |  |                   | 688   |                 |   | 889   
|Thereafter                                          |  |                   | 1,257 |                 |   | 3,827 
|                                                    |  |                   |       |                 |   |       
|Total minimum lease payments                        |  | $                 | 4,638 |                 | $ | 10,778
|                                                    |  |                   |       |                 |   |       
|Less imputed interest                               |  |                   | 1,290 |                 |   |       
|                                                    |  |                   |       |                 |   |       
|Present value of minimum capitalized lease payments |  |                   | 3,348 |                 |   |       
|Less current portion                                |  |                   | 391   |                 |   |       
|                                                    |  |                   |       |                 |   |       
|Long-term capitalized lease obligations             |  | $                 | 2,957 |                 |   |       
|                                                    |  |                   |       |                 |   |       

As of December 31, 2005, the Company has recorded $3,604 as property, plant and equipment due
to capital lease transactions for land and for the buildout of various multiple dwelling units. The amortization of the capital leases are recorded in Depreciation and Amortization with other property, plant and equipment. The base rentals recorded
to the multiple dwelling unit capital leases are contingent upon the Company acquiring subscribers. The Company has agreed to pay various amounts per subscriber to the lessors as the base monthly rentals. The lease terms are seven years. In
accordance with FASB No. 13, Accounting for Leases, the Company has projected the number of subscribers to record the capital asset and liability and will update the projections to actual subscribers on a quarterly basis.

6. Commitments and Contingencies

Purchase
commitments

The Company has entered into contracts with various entities to provide programming to be aired by the Company. The Company
pays a monthly fee for the programming services, generally based on the number of average video subscribers to the program, although some fees are adjusted based on the total number of video subscribers to the system and/or the system penetration
percentage. Total programming fees were approximately $31,120, $47,018 and 48,649 for the years ended December 31, 2003, 2004, and 2005, respectively. The Company estimates that it will pay approximately $52,177 in programming fees under these
contracts during 2006.



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Legal proceedings

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

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

On December 29, 2004, the Sixth Circuit reversed the U.S. District Courts decision denying Insights Noerr-Pennington immunity and
granting summary judgment to Knology on its First Amendment Section 1983 claim. The Sixth Circuit remanded to the U.S. District Court for further proceedings consistent with its Opinion. On January 12, 2005, we filed a Petition for
Rehearing En Banc with the Sixth Circuit. On March 2, 2005, the Sixth Circuit denied our Petition for Rehearing. The parties dispute what remains, if any, of our case now that the Sixth Circuit has denied our Petition. We contend we are
entitled to a trial on whether Insights State Court Action was protected by Noerr-Pennington immunity. Insight contends the Sixth Circuits Opinion requires a dismissal with prejudice of all of our claims. At this time it is
impossible to determine with certainty the ultimate outcome of the litigation.

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

7. Income Taxes

The benefit/(provision) for income taxes from continuing operations consisted of the following for the years ended December 31, 2003, 2004, and 2005:



|                                           |  |      |         |   |      |   |         |      |  |   |          |  
|------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                           |  | 2003 |         |   | 2004 |   |         | 2005 | 
|Current                                    |  | $    | 0       |   |      | $ | 0       |      |  | $ | 0        |  
|Deferred                                   |  |      | 34,882  |   |      |   | 25,180  |      |  |   | (114,201 | )
|(Increase) decrease in valuation allowance |  |      | (34,882 | ) |      |   | (25,180 | )    |  |   | 114,201  |  
|                                           |  |      |         |   |      |   |         |      |  |   |          |  
|Income tax benefit (provision)             |  | $    | 0       |   |      | $ | 0       |      |  | $ | 0        |  
|                                           |  |      |         |   |      |   |         |      |  |   |          |  



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##### Table of Contents

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities as of December 31, 2004 and 2005 are as follows:



|                                                    |  |      |          |   |      |   |         |  
|--------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                                    |  | 2004 |          |   | 2005 |  
|Current deferred tax assets:                        |  |      |          |   |      |   |         |  
|Inventory reserve                                   |  | $    | 587      |   |      | $ | 130     |  
|Allowance for doubtful accounts                     |  |      | 227      |   |      |   | 270     |  
|Other                                               |  |      | 980      |   |      |   | 2,476   |  
|Valuation allowance                                 |  |      | (1,794   | ) |      |   | (2,876  | )
|                                                    |  |      |          |   |      |   |         |  
|Total current deferred taxes                        |  |      | 0        |   |      |   | 0       |  
|                                                    |  |     
|Non-current deferred tax assets:                    |  |      |          |   |      |   |         |  
|Net operating loss & other attributes carryforwards |  |      | 136,954  |   |      |   | 50,891  |  
|Equity in losses of subsidiaries                    |  |      | 1,189    |   |      |   | 0       |  
|Deferred bond interest                              |  |      | 28,798   |   |      |   | 3,788   |  
|Deferred revenues                                   |  |      | 170      |   |      |   | 38      |  
|Alternative minimum tax credit carryforward         |  |      | 2,334    |   |      |   | 0       |  
|Debt issuance costs                                 |  |      | 1,216    |   |      |   | 0       |  
|Other                                               |  |      | 8,055    |   |      |   | 9,354   |  
|Depreciation and amortization                       |  |      | (33,857  | ) |      |   | (31,791 | )
|Gain on discontinued operations                     |  |      | 0        |   |      |   | (2,705  | )
|                                                    |  |      |          |   |      |   |         |  
|Valuation allowance                                 |  |      | (144,859 | ) |      |   | (29,577 | )
|                                                    |  |      |          |   |      |   |         |  
|Total non-current deferred tax assets               |  |      | 0        |   |      |   | 0       |  
|                                                    |  |      |          |   |      |   |         |  
|Net deferred income taxes                           |  | $    | 0        |   |      | $ | 0       |  
|                                                    |  |      |          |   |      |   |         |  

At December 31, 2005, the Company had available federal net operating loss carryforwards of
approximately $483 million that expire from 2007 to 2025. The utilization of $375 million of these loss carryforwards and $2.5 million AMT carryforwards is subject to an annual limitation as a result of a change in ownership of the Company, as
defined in the Internal Revenue Code. Because the annual limitation is so low, the total amount of net operating losses that may be utilized is limited. As a result, the Company is writing down its deferred tax asset by $130 million, the amount of
net operating loss that, because of the limitation, will never be able to be utilized. In addition, the Company does not anticipate ever being able to use the $2.3 million AMT credit carryforward so is writing off the deferred tax asset as well. The
Company also had various state net operating loss carryforwards totaling approximately $368 million. Unless utilized, the state net operating loss carryforwards expire from 2007 to 2025. Management has recorded a total valuation allowance of $32
million against its deferred tax assets including the operating loss carryforwards. Of the $114 million reduction in the valuation allowance, $132 million is for the write-down of deferred tax assets, including the $130 million operating loss
carryforward, offset by current year increase in deferred tax assets of $21 million.

A reconciliation of the income tax provision computed
at statutory tax rates to the income tax provision for the years ended December 31, 2003, 2004, and 2005 is as follows:



|                                                        |  |      |    |  |      |    |  |      |   
|------------------------------------------------------- |  | ---- | -- |  | ---- | -- |  | ---- | --
|                                                        |  | 2003 |    |  | 2004 |    |  | 2005 |   
|Income tax benefit at statutory rate                    |  | 34   | %  |  | 34   | %  |  | 34   | % 
|State income taxes, net of federal benefit              |  | 4    | %  |  | 4    | %  |  | 4    | % 
|Reduction in deferred interest on senior discount notes |  | 0    | %  |  | 0    | %  |  | 0    | % 
|Interesthigh yield debt                                |  | (3   | )% |  | (4   | )% |  | (4   | )%
|Other                                                   |  | 1    | %  |  | 0    | %  |  | 0    | % 
|(Increase) decrease in valuation allowance              |  | (36  | )% |  | (34  | )% |  | (34  | )%
|                                                        |  |      |    |  |      |    |  |      |   
|Income tax benefit (provision)                          |  | 0    | %  |  | 0    | %  |  | 0    | % 
|                                                        |  |      |    |  |      |    |  |      |   



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##### Table of Contents

8. Equity Interests

Capital transactions

The Company has authorized 200,000,000 shares of $.01 par value common stock, 199,000,000 shares of
$.01 par value preferred stock, and 25,000,000 shares of $.01 par value non-voting common stock.

On November 28, 2003, a one-for-10
reverse stock split of shares of the Companys common stock and non-voting common stock became effective. As a result, each of the outstanding shares of common stock was reclassified as one-tenth (1/10) of a share of common stock and each
of the outstanding shares of non-voting common stock was reclassified as one-tenth (1/10) of a share of non-voting common stock.

On
December 23, 2003, the Company completed a public offering of 6,000,000 common shares for $9.00 per share. On January 13, 2004, the Companys underwriters exercised in full their over-allotment option to purchase an additional 900,000
shares of common stock. Including the over-allotment, the Company sold 6,900,000 shares for net proceeds of approximately $56,300. Concurrent with the completion of the of the public offering on December 23, 2003, the outstanding Series A
preferred stock converted to common stock and were reclassified as .10371 of a share of common stock; the Series B preferred stock converted to common stock and were reclassified as .14865 of a share of common stock; and, all remaining classes of
preferred stock converted to common stock and were reclassified as one-tenth (1/10) of a share of common stock. Additionally, options to purchase Series A preferred stock and warrants to purchase Series A preferred stock converted to options
and warrants to purchase common stock, and were reclassified as options to and warrants to purchase .10371 of a share of common stock.

On
May 7, 2004, pursuant to a proposal ratified by a shareholder vote, all outstanding options to purchase common stock granted prior to December 18, 2003 under the 2002 Long-Term Incentive Plan with an exercise price of $16.33 per share were
canceled and replaced with new options with an exercise price of $6.87 per share. In accordance with SFAS 123, Accounting for Stock-Based Compensation, the Company has computed the value of the new options granted using the Black-Sholes
model.

During the fourth quarter of 2004, a significant shareholder liquidated their equity position in the Company, including 2,170,127
shares of non-voting stock. As a result of the transaction, the non-voting stock converted into common stock. As of December 31, 2004, the Company has no shares of non-voting stock outstanding.

Knology, Inc. stock option plans

In December 2002,
the board of directors and stockholders approved the Knology, Inc. 2002 Long-Term Incentive Plan (the 2002 Plan). Effective December 31, 2002 all outstanding awards previously granted under the Broadband 1995 stock option plan (the
1995 Plan) and the Knology 1999 Long-Term Incentive Plan (the 1999 Plan) were canceled. Also effective December 31, 2002, an equal number of the awards canceled under these plans were granted, along with additional
awards, under the 2002 Plan. The 1995 Plan and the 1999 Plan are no longer maintained by the Company.

In 2004, the board of directors and
stockholders approved the amendment and restatement of the 2002 Plan (the Amended 2002 Plan). The Amended 2002 Plan authorizes the issuance of up to 3 million shares of common stock pursuant to stock option awards. The Amended 2002
Plan is administered by the compensation and stock option committee of the board of directors. Options granted under the plans are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended. All options are granted at an exercise price equal to the estimated fair value of the common stock at the dates of grant as determined by the board of directors based on private equity transactions and other analyses. The options
expire 10 years from the date of grant, with the exception of options that were granted to replace canceled options. The expiration date of replacement options is the same as the expiration date of the related canceled options.



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##### Table of Contents

On May 7, 2004, pursuant to a proposal ratified by a shareholder vote, all outstanding options to
purchase common stock granted prior to December 18, 2003 under the 2002 Plan with an exercise price of $16.33 per share were canceled and replaced with new options granted under the Amended 2002 Plan with an exercise price of $6.87 per share.

Statement of Financial Accounting Standards No. 123

The Company follows SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair value-based method of accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing to remain with the accounting methodology required by APB Opinion No. 25 must make pro forma disclosures
of net income and, if presented, earnings per share as if the fair value-based method of accounting defined in SFAS No. 123 had been applied.

In 2002, the Company elected to adopt the fair value recognition of compensation cost provisions of SFAS No. 123. The Company also elected to report the change in accounting principle from APB No. 25 using the prospective method
in accordance with SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. Under the prospective method, the recognition of compensation cost is applied to all employee awards granted, modified, or
settled after the beginning of the fiscal year in which the recognition provisions are first applied. In December 2002, the Company canceled all outstanding awards for common stock as of December 31, 2002 and granted an equal number of
replacement options at the current fair market value with the same expiration date as the related canceled option. The replacement options, as well as all other awards granted and settled during 2002, were included in the calculation of compensation
cost in accordance with SFAS No. 123 and SFAS No. 148. The Company recorded a non-cash stock option compensation charge of $3,266 related to the replacement and the adoption of the provisions of SFAS No. 123 and SFAS No. 148. In
January 2006, FAS 123R was adopted with no impact to on the Companys financial statements. The following represent the expected stock option compensation expense for the next five years assuming no additional grants.



|     |  |   |    
|---- |  | - | ---
|2006 |  | $ | 327
|2007 |  |   | 394
|2008 |  |   | 166
|2009 |  |   | 50 
|2010 |  |   | 0  
|     |  |   |    
|     |  | $ | 937
|     |  |   |    

The fair value of stock options was estimated at the date of grant using a Black-Scholes option
pricing model and the following weighted average assumptions in 2002, 2003, and 2004:



|                        |  |            |   |  |            |   |  |            |   |  |            |  
|----------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Common                  |  | 2002       |   |  | 2003       |   |  | 2004       |   |  | 2005       |  
|Risk-free interest rate |  | 2.79       | % |  | 2.82       | % |  | 2.80-3.94  | % |  | 3.64-4.13  | %
|Expected dividend yield |  | 0          | % |  | 0          | % |  | 0          | % |  | 0          | %
|Expected lives          |  | Four years |   |  | Four years |   |  | Four years |   |  | Four years |  
|Expected volatility     |  | 38         | % |  | 28         | % |  | 28         | % |  | 68         | %



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##### Table of Contents

A summary of the status of the Companys stock options at December 31, 2005 is presented in the
following table:



|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     
|-------------------------------------------- |  | ------------ | - |  | --------------------------------------- | ----- | ---------------------------------------- | - | ----------------------- |  | ---------- | ------------------------------------- |  | - | ----
|                                             |  | Commonshares |   |  | Weightedaverage exerciseprice per share |       | Weightedaverage fairvalue priceper share |   | Series Apreferredshares |  |            | Weightedaverageexerciseprice pershare
|Outstanding at December 31, 2002             |  | 805,227      |   |  | $                                       | 18.70 |                                          |   |                         |  | 2,908,537  |                                       |  | $ | 1.60
|                                             |  |              |   |  |                                        
|Granted                                      |  | 784,209      |   |  |                                         | 10.64 |                                          |   |                         |  | 0          |                                       |  |   | 0   
|Forfeited                                    |  | (48,896      | ) |  |                                         | 18.92 |                                          |   |                         |  | (89,340    | )                                     |  |   | 3.26
|Exercised                                    |  | (946         | ) |  |                                         | 18.70 |                                          |   |                         |  | (209,420   | )                                     |  |   | 1.03
|Converted as a result of the public offering |  | 270,660      |   |  |                                         | 15.41 |                                          |   |                         |  | (2,609,777 | )                                     |  | $ | 1.60
|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     
|Outstanding at December 31, 2003             |  | 1,810,254    |   |  | $                                       | 14.79 |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                        
|Granted                                      |  | 1,387,291    |   |  |                                         | 7.48  |                                          | $ | 2.55                    |  | 0          |                                       |  |   | 0   
|Forfeited                                    |  | (1,161,484   | ) |  |                                         | 16.33 |                                          |   |                         |  | 0          |                                       |  |   | 0   
|Exercised                                    |  | (9,776       | ) |  |                                         | 2.89  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     
|Outstanding at December 31, 2004             |  | 2,026,285    |   |  | $                                       | 8.94  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                        
|Granted                                      |  | 1,722,521    |   |  |                                         | 1.83  |                                          | $ | 1.01                    |  | 0          |                                       |  |   | 0   
|Forfeited                                    |  | (651,506     | ) |  |                                         | 7.19  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|Exercised                                    |  | (71,183      | ) |  |                                         | 1.71  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     
|Outstanding at December 31, 2005             |  | 3,026,117    |   |  | $                                       | 5.41  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     
|Exercisable shares at December 31, 2005      |  | 1,830,610    |   |  | $                                       | 6.50  |                                          |   |                         |  | 0          |                                       |  |   | 0   
|                                             |  |              |   |  |                                         |       |                                          |   |                         |  |            |                                       |  |   |     

The following table sets forth the exercise price range, number of shares, weighted average
exercise price, and remaining contractual lives by groups of similar price and grant date:

Common shares



|                         |  |                              |  |                                           |  |                              |       |                            |         |                      |   |      
|------------------------ |  | ---------------------------- |  | ----------------------------------------- |  | ---------------------------- | ----- | -------------------------- | ------- | -------------------- | - | -----
|Range of exercise prices |  | Outstanding as of 12/31/2005 |  | Weightedaverage remainingcontractual life |  | Weightedaverageexerciseprice |       | Exercisableas of12/31/2005 |         | Averageexerciseprice
|$1.70-$1.70              |  | 1,145,807                    |  | 9.34                                      |  | $                            | 1.70  |                            | 589,748 |                      | $ | 1.70 
|$1.75-$4.26              |  | 484,065                      |  | 9.57                                      |  | $                            | 2.31  |                            | 170,485 |                      | $ | 2.19 
|$4.31-$6.87              |  | 646,187                      |  | 5.32                                      |  | $                            | 6.45  |                            | 526,585 |                      | $ | 6.53 
|$7.30-$10.09             |  | 617,699                      |  | 8.03                                      |  | $                            | 9.41  |                            | 412,604 |                      | $ | 9.16 
|$10.15-$35.68            |  | 132,359                      |  | 3.10                                      |  | $                            | 25.14 |                            | 131,188 |                      | $ | 25.27

At December 31, 2005, 1,830,610 options for the Companys common shares with a weighted
average price of $6.50 per share were exercisable by employees of the Company. At December 31, 2004, 1,421,487 options for the Companys common shares with a weighted average price of $9.27 per share were exercisable by employees of the
Company. At December 31, 2003, 909,451 options for the Companys common shares with a weighted average of $18.70 per share were exercisable by employees of the Company.



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##### Table of Contents

9. Related Party Transactions

Relatives of the chairman of our board are stockholders and employees of one of the Companys insurance provider. The costs charged to the Company for insurance services were approximately $927, $1,962, and
$2,297 for the years ended December 31, 2003, 2004, and 2005, respectively. The Company also rents office space from the insurance provider, which was approximately $37 for the years ended December 31, 2003, 2004, and 2005. The Company
also rents office space from a company owned by a board member, which was approximately $43, $46, and $47 for the years ended December 31, 2003, 2004, and 2005, respectively.

10. Quarter-by-Quarter Comparison (Unaudited)

Summarized quarterly financial data for the years
ended December 31, 2004 and 2005 are as follows:



|                                                            |  |            |   |  |            |   |  |            |      |  |            |  
|----------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | ---- |  | ---------- | -
|Quarters:                                                   |  | First      |   |  | Second     |   |  | Third      |      |  | Fourth     |  
|2004                                                        |  |            |   |  |            |   |  |            |      |  |            |  
|Operating revenues                                          |  | 53,794     |   |  | 52,735     |   |  | 52,065     |      |  | 52,864     |  
|Operating (loss) income                                     |  | (11,115    | ) |  | (11,323    | ) |  | (12,678    | )    |  | (10,880    | )
|Net (loss) income                                           |  | (18,366    | ) |  | (18,664    | ) |  | (20,039    | )    |  | (18,495    | )
|Basic and diluted net loss per share                        |  | (.78       | ) |  | (.79       | ) |  | (.85       | )    |  | (.78       | )
|Basic and diluted weighted average shares outstanding       |  | 23,552,210 |   |  | 23,685,080 |   |  | 23,685,333 |      |  | 23,688,472 |  
|                                                            |  |            |   | 
|2005                                                        |  |            |   |  |            |   |  |            |      |  |            |  
|Operating revenues                                          |  | 55,030     |   |  | 57,272     |   |  | 58,616     |      |  | 59,939     |  
|Operating (loss) income                                     |  | (9,425     | ) |  | (7,845     | ) |  | (6,938     | )    |  | (5,937     | )
|Net (loss) income attributable to common stockholders       |  | (16,878    | ) |  | (15,562    | ) |  | (8,157     | )(1) |  | (14,628    | )
|Basic and diluted net loss per share to common stockholders |  | (.71       | ) |  | (.66       | ) |  | (.34       | )    |  | (.62       | )
|Basic and diluted weighted average shares outstanding       |  | 23,697,787 |   |  | 23,697,787 |   |  | 23,708,778 |      |  | 23,804,515 |  

---

|(1) | Includes $8,320 gain on the disposal of discontinued operations as described in Note 11.
|--- | ----------------------------------------------------------------------------------------

11. Disposal of Discontinued Operations

On September 12, 2005, the Company sold its cable
assets in Cerritos, California to WaveDivision Holdings, LLC for $10.0 million in cash, subject to customary closing adjustments of $235. $1.0 million of cash proceeds is in escrow, of which $500 will be paid out March 12, 2006 and the
remaining $500 will be paid out September 12, 2006. After recording transaction costs of $836 and writing off net assets of $609, the company recorded a gain of $8.3 million. The net income associated with the Cerritos cable system since
April 30, 2004 is presented separately in the statement of operations as income from discontinued operations ($84 for 2005). The Cerritos cable system generated approximately $2,259 of revenue for the year ended December 31, 2005.

12. Redeemable Convertible Preferred Stock

In May 2005, the Company issued 920,000 shares of a newly created series of preferred stock, the Series AA convertible preferred stock (the Preferred Stock), in a private offering to certain new and existing investors at a
purchase price of $10.00 per share, for aggregate gross proceeds before expenses of $9.2 million. In October 2005, the Company received gross offering proceeds of $10.8 million and certain selling shareholders received proceeds of $1.9 million
for the resale of a portion of their shares issued in May 2005. In November 2005, the Company used net offering proceeds to pay down principal of $10.4 million on the first lien debt. Dividends will accrue on the Preferred Stock at an 8% annual
rate, which may be paid in cash or additional shares of the Preferred Stock. However, pursuant to the restrictions of the new debt, the Company is prohibited from paying dividends in cash other than cash in lieu of fractional shares. During the
year, 58,742 shares of Preferred Stock were issued as dividends for a total of $588,000. The shares of the Preferred Stock are: (i) immediately convertible upon the request of the stockholder of record, (ii) mandatorily convertible at a
future date when the common stock is traded at a quoted price of $8.00 or higher for a certain period of time, and (iii) redeemable



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##### Table of Contents

beginning December 31, 2011. As of December 31, 2005, shareholders had converted 73,661 shares of Preferred Stock. Each share of the Preferred
Stock is convertible into a number of shares of Common Stock equal to the quotient of the Liquidation Value of the Preferred Stock divided by $2.00, subject to proportional anti-dilution adjustments for stock dividends, stock splits and similar
transactions affecting the Common Stock as well as institutional weighted average adjustments for issuances of Common Stock and Common Stock equivalents. The Companys Preferred Stock is not classified as a liability since the
redemption is contingent upon the holders not exercising its option to convert into a fixed number of shares, five shares of common for each share of preferred. The Company follows the guidance in Accounting Series Release
(ASR) 268, Presentation in Financial Statements of Redeemable Preferred Stocks. ASR 268 highlights the redemption obligation of the securities and the fact that amounts attributable to these securities are not part of
permanent capital. Accordingly, it has classified its preferred shares in the accompanying consolidated balance sheet between liabilities and permanent equity in the caption Redeemable Convertible Preferred Stock.



F-24