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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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

For the Quarterly Period Ended March 31, 2007

OR



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

For the transition period from                  to

Commission file number 333-115602



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Grande
Communications Holdings, Inc.

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|Delaware                                                      |  | 74-3005133                            
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification Number)
|                                                              | 
|401 Carlson Circle, San Marcos, TX                            |  | 78666                                 
|(Address of principal executive offices)                      |  | (Zip Code)                            

Registrants telephone number including area code: (512) 878-4000

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

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



|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|Large accelerated filer ̈ |  | Accelerated filer ̈ |  | Non-accelerated filer  x

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

The number of shares of the registrants Common Stock outstanding as of April 30, 2007 was 12,598,140.



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GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

Index



|           |  |                                                                                       |  |         
|---------- |  | ------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                       |  | Page No.
|Part I.    |  | Financial Information                                                                 |  | 1       
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |  | 1       
|           |  | Condensed Consolidated Balance Sheets                                                 |  | 1       
|           |  | Condensed Consolidated Statements of Operations                                       |  | 2       
|           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 3       
|           |  | Notes to Condensed Consolidated Financial Statements                                  |  | 4       
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 6       
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 16      
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 16      
|           |  |                                                                                      
|Part II.   |  | Other Information                                                                     |  | 17      
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 17      
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 17      
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 17      
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 17      
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 17      
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 17      
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 17      
|           | 
|Signatures |  | 18                                                                                   



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##### Table of Contents

PART I

FINANCIAL INFORMATION



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

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                                                                                                                                                                      |  | December 31,2006 |          |   | March 31,2007 |  
|                                                                                                                                                                                                                      |  |                  |          |   | (unaudited)   |  
|Assets                                                                                                                                                                                                                |  |                  |          |   |               |   |          |  
|Current assets:                                                                                                                                                                                                       |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                                                                                                                                                                             |  | $                | 43,948   |   |               | $ | 43,844   |  
|Accounts receivable, net                                                                                                                                                                                              |  |                  | 17,241   |   |               |   | 17,228   |  
|Prepaid expenses                                                                                                                                                                                                      |  |                  | 1,823    |   |               |   | 2,704    |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total current assets                                                                                                                                                                                                  |  |                  | 63,012   |   |               |   | 63,776   |  
|Property, plant and equipment, net                                                                                                                                                                                    |  |                  | 271,939  |   |               |   | 265,607  |  
|Intangible assets, net                                                                                                                                                                                                |  |                  | 1,748    |   |               |   | 1,685    |  
|Debt issue costs, net                                                                                                                                                                                                 |  |                  | 5,115    |   |               |   | 4,863    |  
|Other assets                                                                                                                                                                                                          |  |                  | 3,227    |   |               |   | 3,223    |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total assets                                                                                                                                                                                                          |  | $                | 345,041  |   |               | $ | 339,154  |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Liabilities and stockholders equity                                                                                                                                                                                  |  |                  |          |   |               |   |          |  
|Current liabilities:                                                                                                                                                                                                  |  |                  |          |   |               |   |          |  
|Accounts payable                                                                                                                                                                                                      |  | $                | 11,981   |   |               | $ | 12,220   |  
|Accrued liabilities                                                                                                                                                                                                   |  |                  | 20,436   |   |               |   | 24,483   |  
|Note payable                                                                                                                                                                                                          |  |                  | 9        |   |               |   | 9        |  
|Deferred revenue                                                                                                                                                                                                      |  |                  | 6,546    |   |               |   | 7,135    |  
|Current portion of capital lease obligations                                                                                                                                                                          |  |                  | 3,859    |   |               |   | 3,404    |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total current liabilities                                                                                                                                                                                             |  |                  | 42,831   |   |               |   | 47,251   |  
|Deferred rent                                                                                                                                                                                                         |  |                  | 1,268    |   |               |   | 1,264    |  
|Deferred revenue                                                                                                                                                                                                      |  |                  | 4,551    |   |               |   | 4,382    |  
|Capital lease obligations, net of current portion                                                                                                                                                                     |  |                  | 16,634   |   |               |   | 15,814   |  
|Long term debt                                                                                                                                                                                                        |  |                  | 160,797  |   |               |   | 161,102  |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total liabilities                                                                                                                                                                                                     |  |                  | 226,081  |   |               |   | 229,813  |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Commitments and contingencies (Note 3)                                                                                                                                                                                |  |                  |          |   |               |   |          |  
|Stockholders equity:                                                                                                                                                                                                 |  |                  |          |   |               |   |          |  
|Senior series preferred stock:                                                                                                                                                                                        |  |                  |          |   |               |   |          |  
|Series G preferred stock, $0.001 par value per share; 34,615,384 shares authorized, 34,615,330 shares issued and outstanding; liquidation
preference of $135,000                                                      |  |                  | 35       |   |               |   | 35       |  
|Junior series preferred stock:                                                                                                                                                                                        |  |                  |          |   |               |   |          |  
|Series A preferred stock, $0.001 par value per share; 232,617,839 shares authorized, 232,617,838 shares issued and outstanding; liquidation
preference of $232,618                                                    |  |                  | 233      |   |               |   | 233      |  
|Series B preferred stock, $0.001 par value per share; 20,833,333 shares authorized, issued and outstanding; liquidation preference of
$25,000                                                                         |  |                  | 21       |   |               |   | 21       |  
|Series C preferred stock, $0.001 par value per share; 30,000,000 shares authorized, 17,005,191 shares issued and outstanding; liquidation
preference of $20,406                                                       |  |                  | 17       |   |               |   | 17       |  
|Series D preferred stock, $0.001 par value per share; 115,384,615 shares authorized, 114,698,442 shares issued and outstanding; liquidation
preference of $149,108                                                    |  |                  | 115      |   |               |   | 115      |  
|Series E preferred stock, $0.001 par value per share; 8,000,000 shares authorized, 7,999,099 shares issued and outstanding; liquidation
preference of $19,998                                                         |  |                  | 8        |   |               |   | 8        |  
|Series F preferred stock, $0.001 par value per share; 12,307,792 shares authorized, 11,758,278 shares issued and outstanding; liquidation
preference of $15,286                                                       |  |                  | 12       |   |               |   | 12       |  
|Series H preferred stock, $0.001 par value per share; 30,000,000 shares authorized, no shares issued and outstanding                                                                                                  |  |                  |         |   |               |   |         |  
|Common stock, $0.001 par value per share; 828,835,883 shares authorized, 13,091,140 and 13,092,140 shares issued, 12,591,140 and 12,592,140
shares outstanding, at December 31, 2006 and March 31, 2007, respectively |  |                  | 13       |   |               |   | 13       |  
|Additional paid-in capital                                                                                                                                                                                            |  |                  | 508,736  |   |               |   | 508,853  |  
|Treasury stock, at cost                                                                                                                                                                                               |  |                  | (5       | ) |               |   | (5       | )
|Accumulated deficit                                                                                                                                                                                                   |  |                  | (390,225 | ) |               |   | (399,961 | )
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total stockholders equity                                                                                                                                                                                            |  |                  | 118,960  |   |               |   | 109,341  |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                                                                                            |  | $                | 345,041  |   |               | $ | 339,154  |  
|                                                                                                                                                                                                                      |  |                  |          |   |               |   |          |  

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



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GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)



|                                                                       |  |                             |        |   |      |   |        |  
|---------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                       |  | Three Months EndedMarch 31, |       
|                                                                       |  | 2006                        |        |   | 2007 |  
|Operating revenues                                                     |  | $                           | 47,636 |   |      | $ | 48,395 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Operating expenses:                                                    |  |                             |        |   |      |   |        |  
|Cost of revenues (excluding depreciation and amortization)             |  |                             | 16,525 |   |      |   | 16,528 |  
|Selling, general and administrative                                    |  |                             | 23,772 |   |      |   | 22,298 |  
|Depreciation and amortization                                          |  |                             | 13,882 |   |      |   | 13,044 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Total operating expenses                                               |  |                             | 54,179 |   |      |   | 51,870 |  
|                                                                       |  |                             |        |   |      |   |        |  
|Operating loss                                                         |  |                             | (6,543 | ) |      |   | (3,475 | )
|                                                                       |  |                             |        |   |      |   |        |  
|Other income (expense):                                                |  |                             |        |   |      |   |        |  
|Interest income                                                        |  |                             | 141    |   |      |   | 433    |  
|Interest expense                                                       |  |                             | (5,106 | ) |      |   | (6,669 | )
|Gain (loss) on sale of assets                                          |  |                             | 1,872  |   |      |   | (25    | )
|                                                                       |  |                             |        |   |      |   |        |  
|Total other income (expense)                                           |  |                             | (3,093 | ) |      |   | (6,261 | )
|                                                                       |  |                             |        |   |      |   |        |  
|Net loss                                                               |  | $                           | (9,636 | ) |      | $ | (9,736 | )
|                                                                       |  |                             |        |   |      |   |        |  
|Basic and diluted net loss per share                                   |  | $                           | (0.77  | ) |      | $ | (0.77  | )
|Basic and diluted weighted average number of common shares outstanding |  |                             | 12,497 |   |      |   | 12,592 |  

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



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GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)



|                                                                               |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                               |  | Three Months EndedMarch 31, |       
|                                                                               |  | 2006                        |        |   | 2007 |  
|Cash flows from operating activities:                                          |  |                             |        |   |      |   |        |  
|Net loss                                                                       |  | $                           | (9,636 | ) |      | $ | (9,736 | )
|Adjustment to reconcile net loss to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Depreciation                                                                   |  |                             | 13,807 |   |      |   | 12,981 |  
|Amortization of intangible assets                                              |  |                             | 75     |   |      |   | 63     |  
|Amortization of debt issue costs                                               |  |                             | 245    |   |      |   | 252    |  
|Provision for bad debts                                                        |  |                             | 944    |   |      |   | 513    |  
|Accretion of debt discount                                                     |  |                             | 222    |   |      |   | 305    |  
|Non-cash compensation expense                                                  |  |                             | 33     |   |      |   | 117    |  
|(Gain) loss on sale of assets                                                  |  |                             | (1,872 | ) |      |   | 25     |  
|Changes in operating assets and liabilities:                                   |  |                             |        |   |      |   |        |  
|Accounts receivable                                                            |  |                             | 1,448  |   |      |   | (500   | )
|Prepaid expenses                                                               |  |                             | (1,215 | ) |      |   | (877   | )
|Accounts payable                                                               |  |                             | (2,291 | ) |      |   | (140   | )
|Accrued liabilities                                                            |  |                             | 3,103  |   |      |   | 4,047  |  
|Deferred revenue                                                               |  |                             | (243   | ) |      |   | 508    |  
|Deferred rent                                                                  |  |                             | (43    | ) |      |   | (4     | )
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash provided by operating activities                                      |  |                             | 4,577  |   |      |   | 7,554  |  
|                                                                               |  |                             |        |   |      |   |        |  
|Cash flows from investing activities:                                          |  |                             |        |   |      |   |        |  
|Purchases of property, plant and equipment                                     |  |                             | (7,311 | ) |      |   | (7,978 | )
|Proceeds from sale of assets and sales tax refund                              |  |                             | 2,452  |   |      |   | 1,216  |  
|Other investing activity                                                       |  |                             | (4     | ) |      |   |       |  
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                          |  |                             | (4,863 | ) |      |   | (6,762 | )
|                                                                               |  |                             |        |   |      |   |        |  
|Cash flows from financing activities:                                          |  |                             |        |   |      |   |        |  
|Net proceeds from borrowings                                                   |  |                             | 30,581 |   |      |   |       |  
|Payments of long-term debt                                                     |  |                             | (231   | ) |      |   | (1,275 | )
|Net borrowings (repayments) on zero-balance cash account                       |  |                             | (1,270 | ) |      |   | 379    |  
|Other financing activity                                                       |  |                             | 3      |   |      |   |       |  
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                            |  |                             | 29,083 |   |      |   | (896   | )
|                                                                               |  |                             |        |   |      |   |        |  
|Net change in cash and cash equivalents                                        |  |                             | 28,797 |   |      |   | (104   | )
|Cash and cash equivalents, beginning of period                                 |  |                             | 26,719 |   |      |   | 43,948 |  
|                                                                               |  |                             |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                       |  | $                           | 55,516 |   |      | $ | 43,844 |  
|                                                                               |  |                             |        |   |      |   |        |  

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



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GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Background and Basis of Presentation

The primary
business of Grande Communications Holdings, Inc. and its consolidated subsidiary, Grande Communications Networks, Inc. (collectively the Company) is providing residential and small and medium sized business customers in Texas with a
bundled package of cable television, telephone, and broadband Internet and other services. The Company provides these services in seven markets in the state of Texas using local broadband networks that the Company constructed. In addition, the
Company provides broadband transport services to medium and large enterprises and communications carriers as well as providing network services by offering telecommunications and data products to medium and large enterprises and communications
carriers within the wholesale markets.

The accompanying unaudited condensed consolidated financial statements of the Company have been
prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the SEC) that permit reduced
disclosure for interim periods. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all
adjustments, consisting of normal, recurring adjustments necessary for a fair presentation of the financial position of the Company as of March 31, 2006 and 2007, and for the three months ended March 31, 2006 and 2007. Operating results
for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. The December 31, 2006 balance sheet is derived from the audited financial statements
for the year ended December 31, 2006. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006 and notes thereto, together with managements
discussion and analysis of financial condition and results of operations contained in the Companys Annual Report for the year ended December 31, 2006 on Form 10-K filed with the SEC on March 30, 2007.

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying disclosures. These estimates are based on managements best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from these
estimates.

2. Income Taxes

The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, we have concluded that there are no significant unrecognized tax benefits requiring recognition in our financial
statements. Our evaluation was performed for the tax years ended December 31, 2003, 2004, 2005 and 2006, the tax years that remain subject to examination by federal jurisdiction as of March 31, 2007. The tax years that remain subject to
examination by Texas include the previously mentioned tax years as well as the tax year ended December 31, 2002.

We may from time to
time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it
has been classified in the financial statements as interest expense and selling, general and administrative expense, respectively.



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3. Contingencies

Legal Proceedings

We are subject to litigation in the normal course of our business. However, there are no pending
proceedings that are currently anticipated to have a material adverse effect on our business, financial condition or results of operations.

Insurance

The Company carries a broad range of insurance coverage, including property, business, auto liability,
general liability, directors and officers, workers compensation and an umbrella policy. The Company has not incurred significant claims or losses on any of these insurance policies.

The Company utilizes self-insurance with respect to employee medical coverage. Such self-insurance is provided in connection with a plan that includes
certain stop-loss coverage on a per employee and total claims basis. The Company estimates the liability for claims based on Company experience. Additionally, the Company utilizes self-insurance for its distribution line equipment. Management
believes that the risk of loss related to this equipment is not significant.

4. Subsequent Events

Interest Payment

In April 2007, we paid $11.8
million of interest due on our 14% senior secured notes due 2011 (senior notes). The senior notes are governed by the indenture between Grande and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004
(Indenture.)

Long Term Debt

During May 2007, the Company completed new financing of up to $3.5 million on a secured credit facility with a term of 24 months, which will be available to support the Companys purchase of network equipment. The financing is secured
by the network equipment purchased from the proceeds of the facility and includes interest at an effective rate of approximately 15.3% with monthly payments based on 4.2% multiplied by the total amounts drawn for network equipment purchases. The
first draw of approximately $3.1 million occurred on May 4, 2007. This financing is permitted under the Indenture.



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

This managements discussion and analysis includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. When used in this report, the words anticipate,
believe, estimate, expect, should, intend, plan and similar expressions as they relate to Grande Communications Holdings, Inc. or our management are intended to identify these
forward-looking statements. All statements by us regarding our expected future financial position and operating results, our business strategy, our financing plans, forecasted trends relating to the markets in which we operate and similar matters
are forward-looking statements. We cannot assure you that our expectations expressed or implied in these forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of
various factors, including those discussed below and under the caption Risk FactorsRisks Relating to Our Business in our Annual Report on Form 10-K, filed with the SEC on March 30, 2007. The following managements
discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith and with our Managements Discussion and Analysis of Financial Condition and Results of Operation and
Consolidated Financial Statements and Notes thereto for the three-year period ended December 31, 2006, included in our Annual Report on Form 10-K filed with the SEC on March 30, 2007.

Unless we indicate otherwise, references below to we, us, our, the Company and Grande mean Grande
Communications Holdings, Inc. and our consolidated subsidiary, Grande Communications Networks, Inc., taken as a whole.

Overview

Grandes primary business is providing residential and small and medium sized business customers in Texas with a bundled package of cable television,
telephone, and broadband Internet and other services. We provide these services in seven markets in the state of Texas using local broadband networks that we constructed. We refer to the homes and businesses that our network is capable of providing
services to as marketable homes passed. As of March 31, 2007, we had the ability to market services to 338,852 distinct homes and businesses over our networks and had 139,226 residential and business customers. Our operating
revenues were $47.6 million and $48.4 million for the three months ended March 31, 2006 and 2007, respectively.

Grande was founded in
October 1999 and was funded with $232 million of initial equity capital to pursue a retail strategy of constructing broadband networks in order to offer bundled cable television, telephone, and broadband Internet services to customers. Operating
revenues from bundled services were $35.9 million and $37.8 million for the three months ended March 31, 2006 and 2007, respectively.

We believe that an important measure of our growth potential is the number of marketable homes passed by our networks. Marketable homes passed are the number of residential and business units, such as single residential homes, apartments
and condominium units, passed by our networks, other than those we believe are covered by exclusive arrangements with other providers of competing services. Since 2001, we have grown our marketable homes passed through the construction of our
networks. The expansion of our networks has, in turn, allowed us to pursue a retail strategy of offering bundled cable television, telephone and broadband Internet services to residential and business customers. We have derived an increasing
percentage of our revenues from our bundled services and we expect this trend to continue. Because of our local networks and fixed infrastructure in the markets in which we currently operate, we believe we can continue to grow our business without
incurring the significant capital investment required to launch operations in new markets.

In addition, we have leveraged our retail metro
network build-out with the 2003 acquisition of a long haul network, primarily located in Texas, to allow us to provide broadband transport services to medium and large enterprises and communications carriers. Operating revenues for broadband
transport services were $2.3 million and $2.4 million for the three months ended March 31, 2006 and 2007, respectively.

In July 2000,
when our network construction was still in a very early stage, we acquired Thrifty Call, which had an established telephone and data network that served as the platform for the provisioning of residential telephone and broadband Internet services
and that still provides network services to medium and large enterprises and communications carriers in the wholesale market. Operating revenues for network services were $9.4 million and $8.2 million for the three months ended March 31, 2006
and 2007, respectively.

Our network services are primarily provided using our existing infrastructure and personnel with minimal
incremental operating costs and capital expenditures for maintenance. By leveraging our brand, communications infrastructure, voice and



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data volume, and personnel that predominately support our core retail business and its products we have gained efficiencies of scale by offering
telecommunications and data products into the wholesale markets.

We have incurred net losses for the past five years and expect to
continue to incur net losses in the future. However, we had positive Adjusted EBITDA during the fiscal years ended 2002 through 2006 as well as for the three months ended March 31, 2006 and 2007. See EBITDA/Adjusted EBITDA below for
a discussion of this non-GAAP measure of our operating performance as well as our use of Adjusted EBITDA. Our financial results depend upon many factors that significantly affect our results of operations including, without limitation:



| |  |  | the availability of, and our ability to obtain additional funding, if necessary,
| | - |  | --------------------------------------------------------------------------------



| |  |  | our ability to obtain enough customers for our services to offset the costs of operating our networks, and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | increasing programming and other costs.
| | - |  | ---------------------------------------

Availability of Capital

As described more fully under Liquidity and Capital Resources below, our principal
sources of capital going forward will primarily be cash on hand and cash flow from operations. If we do not continue to increase the number of customers and the average prices received for our services, cash flow from operations will be adversely
effected and cash on hand will decline.

Since inception, we have been funded primarily with private equity investments and the issuance of
debt securities. Between February 2000 and October 2003, we completed a series of private placements of our preferred stock, raising aggregate gross proceeds of $338.2 million. The net proceeds from these private placements have been used to fund
our network build-out, operations, and our acquisitions. As a result of these equity investments and our merger with ClearSource in 2002, where stock was used as consideration, we now have $509 million of total invested equity capital and a base of
over 20 institutional private equity investors.

Since 2004, we have also raised net proceeds of approximately $155.0 million of senior
secured debt. On March 23, 2004, we raised net proceeds of approximately $124.5 million in a private placement of 136,000 units, with each unit consisting of a $1,000 principal amount of 14% senior secured note due 2011 (senior
notes) and a warrant to purchase 100.336 shares of our common stock. The senior notes are governed by the indenture between Grande and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004 (Indenture.) We
used a portion of the net proceeds from the offering to repay all amounts outstanding under our then-existing senior credit facility. That facility was terminated upon repayment.

On March 24, 2006, we raised net proceeds of approximately $30.5 million in a private placement of an additional $32.0 million in aggregate
principal amount of senior notes. These additional notes were issued under the Indenture. We are using the proceeds for capital expenditures and working capital purposes.

During May 2007, the Company completed new financing of up to $3.5 million on a secured credit facility with a term of 24 months, which will be available to support the Companys purchase of network equipment.
The financing is secured by the network equipment purchased from the proceeds of the facility and includes interest at an effective rate of approximately 15.3% with monthly payments based on 4.2% multiplied by the total amounts drawn for network
equipment purchases. The first draw of approximately $3.1 million occurred on May 4, 2007. This financing is permitted under the Indenture.

Marketable Homes Passed, Customers and Connections

We report marketable homes passed as the number of residential and
business units, such as single residence homes, apartments and condominium units, passed by our networks other than those we believe are covered by exclusive arrangements with other providers of competing services. As of March 31, 2007, our
networks passed 338,852 marketable homes and we had 139,226 residential and business customers.

Because we deliver multiple services to
our customers, we report our total number of connections for cable television, telephone and broadband Internet and other services in addition to our total number of customers. We count each cable television, telephone and broadband Internet and
other service purchase as a separate connection. For example, a single customer who purchases cable television, telephone and broadband Internet service would count as three connections. Similarly, a single customer who purchases our broadband
Internet service and our wireless security service would count as two connections. We do not record the purchase of long distance telephone service by a local telephone customer or digital cable services by an analog cable customer as additional
connections. However, we do record each purchase of an additional



7



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##### Table of Contents

telephone line by a local telephone customer as an additional connection. As of March 31, 2007, we had 300,790 connections.

Operating Revenues

We derive our operating revenues
primarily from monthly charges for the provision of cable television, telephone, and broadband Internet and other services to residential and business customers. In addition, we derive operating revenues by providing broadband transport services to
medium and large enterprises and communications carriers as well as providing network services by offering telecommunications and data products to medium and large enterprises and communications carriers within the wholesale markets. These services
are a single business provided over a unified network. However, since our different products and services generally involve different types of charges and in some cases different methods of recording revenues, we have presented the following
information on our revenues from each major product line.

Bundled services revenuescable television, telephone, broadband
Internet and other.We typically provide cable television, telephone and broadband Internet and other services on a bundled basis for fixed monthly fees billed in advance, with the amount of the monthly fee varying significantly depending upon
the particular bundle of services provided. We also charge usage-based fees for additional services, such as pay-per-view movies that involve a charge for each viewing and long-distance services that involve charges by the number of minutes of use.
We generally bill for these usage-based services monthly in arrears. We also generate revenues from one-time charges for the installation of premises equipment. Most of our bundled offerings include fees for equipment rental, although in some
instances we sell modems to customers. Revenue generated from equipment sales is an insignificant portion of our total revenues. We also charge monthly or one-time fees for additional services, including advertising. We collect from our cable
customers and include in our gross revenues the fees payable to cable franchise authorities, which are usually approximately 5% of our revenues from cable subscriptions. We began offering security services as part of our bundle in June 2004. We
discontinued actively marketing our security product in 2006. However, we continue to provide service to our existing customer base. The security revenue is included in broadband Internet and other.

Broadband transport services revenues.Our revenues from broadband transport services, which consist of access to our metro area networks and
point-to-point circuits on our long-haul fiber network, involve fixed monthly fees billed in advance, where the amount charged varies with the amount of capacity, type of service and whether any customized capacity or services are provided. Our
revenues also include non-recurring charges for construction, installation and configuration services, which can range significantly depending upon the customers needs.

Network services revenues.Our revenues from network services consist primarily of revenues from switched carrier services and managed modem
services. We bill for most of our network services monthly in arrears based on actual usage. However, some network services, particularly our managed modem services, involve fixed monthly charges billed in advance. Some network services include
non-recurring fees for installation or other work needed to connect the customer to our networks. There are monthly charges or negotiated fees for other services such as directory assistance, web hosting, database, collocation, and technical
support.

Costs and Expenses

Cost of Revenues

Cost of revenues includes those expenses that are directly related to the generation of operating
revenues and has fixed and variable components, however it does not include depreciation or amortization. Our network supports the products and services that we provide to customers, and due to a common network infrastructure and many of the same
resources and personnel being used to generate revenues from the various product and service categories it is difficult to determine cost of revenues by product.

Our cost of revenues include the following:



| |  |  | Cable costs. Programming costs historically have been the largest portion of the cost of providing our cable television services and we expect this trend to
continue. We have entered into contracts for cable programming through the National Cable Television Cooperative and directly with programming providers to provide programming to be aired on our networks. We pay a monthly fee for these programming
services 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 or the system penetration percentage. Since programming cost is based on numbers of
subscribers, it will increase as we add more subscribers. It will also increase to the extent costs per channel increase over time, and may change depending upon the mix of channels we offer in each market from time to time. Our cable costs also
include the fees payable to cable franchise authorities, which are usually approximately 5% of our revenues from cable subscriptions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Telephone costs. Our cost of revenues associated with delivering telephone services to residential and business customers consist primarily of transport
costs, which are comprised mostly of amounts needed for the operation, monitoring and maintenance of our networks, and also include access and other fees that we pay to other carriers to carry calls outside of our networks. Transport costs are
largely fixed so long as we do not need to procure additional equipment or lease additional capacity. Transport costs are expected to increase when new network facilities need to be obtained. The access fees are generally usage-based and, therefore,
variable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Broadband Internet and other costs. Our cost of revenues associated with delivering broadband Internet and other services to residential and business
customers consists primarily of transport costs and fees associated with peering arrangements we have with other carriers. Transport costs and peering fees for this service are largely fixed as long as we do not need to procure additional equipment
or lease additional capacity, but transport costs and peering fees may increase when new facilities for connecting to the Internet need to be obtained. Our security-related costs are primarily related to system monitoring with a third-party
provider.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Broadband transport services costs. Our cost of revenues associated with delivering broadband traffic consists primarily of fixed transport costs, which are
comprised mostly of amounts needed for the operation, monitoring and maintenance of our networks, and also include access and other fees that we pay to other carriers to carry traffic outside of our networks. These costs are mostly fixed in nature.
There are some variable costs associated with external maintenance and with private line services, which can have a component that requires us to pay other carriers for a portion of the private line.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Network services costs. Our cost of revenues associated with delivering traffic consists primarily of transport costs, mostly amounts needed for the
operation, monitoring and maintenance of our networks, and access and other fees that we pay to other carriers to carry traffic outside of our networks. These costs are primarily fixed with respect to the monitoring of the traffic we carry on our
networks, although there are variable components associated with external maintenance costs and other items. The access and other carrier fees are variable and usage-based.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Selling, general and administrative expenses

Our selling, general and administrative expenses include all of the expenses associated with operating and maintaining our networks that are not cost of revenues. These expenses primarily include payroll and
departmental costs incurred for network design, monitoring and maintenance. They also include payroll and departmental costs incurred for customer disconnection and reconnection and service personnel, customer service representatives and management
and sales and marketing personnel. Other included items are advertising expenses, promotional expenses, corporate and subsidiary management, administrative costs, bad debt expense, professional fees, taxes, insurance and facilities costs.

Depreciation and amortization

Depreciation and amortization expenses include depreciation of our broadband networks and equipment and other intangible assets related to acquisitions.



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Operating DataBundled Services



|                                        |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|--------------------------------------- |  | ---------------- | ------- | --------------- | - | ----------------- |  | ---------------- | ------- | ------------- | - | ------- |  | - | -------
|                                        |  | Quarter Ended   
|                                        |  | March 31,2006(1) |         | June 30,2006(1) |   | September 30,2006 |  | December 31,2006 |         | March 31,2007
|Operating Data(1):                      |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|Marketable homes passed                 |  |                  | 336,596 |                 |   | 334,528           |  |                  | 335,818 |               |   | 337,025 |  |   | 338,852
|Customers                               |  |                  | 138,793 |                 |   | 136,920           |  |                  | 138,542 |               |   | 137,542 |  |   | 139,226
|Number of connections:                  |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|Cable television                        |  |                  | 92,174  |                 |   | 91,156            |  |                  | 93,709  |               |   | 93,778  |  |   | 95,585 
|Telephone                               |  |                  | 116,789 |                 |   | 116,463           |  |                  | 117,071 |               |   | 116,229 |  |   | 116,679
|Broadband Internet and other            |  |                  | 77,183  |                 |   | 79,372            |  |                  | 83,229  |               |   | 85,117  |  |   | 88,526 
|                                        |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|Total connections                       |  |                  | 286,146 |                 |   | 286,991           |  |                  | 294,009 |               |   | 295,124 |  |   | 300,790
|                                        |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|Average monthly revenue per:            |  |                  |         |                 |   |                   |  |                  |         |               |   |         |  |   |        
|Customer  bundled services             |  | $                | 87.15   |                 | $ | 88.64             |  | $                | 88.61   |               | $ | 89.00   |  | $ | 91.07  
|Cable television connection             |  |                  | 50.74   |                 |   | 52.15             |  |                  | 52.18   |               |   | 52.40   |  |   | 54.56  
|Telephone connection                    |  |                  | 42.23   |                 |   | 41.72             |  |                  | 40.73   |               |   | 40.18   |  |   | 40.04  
|Broadband Internet and other connection |  |                  | 33.31   |                 |   | 32.87             |  |                  | 32.30   |               |   | 31.90   |  |   | 31.95  

---

|(1) | During 2006, Grande sold certain off-net MDU assets in Dallas, or assets outside of our broadband networks, for net proceeds of $2.5 million in two closings. The first closing
occurred on March 31, 2006 with net proceeds of $1.9 million, and the second closing occurred on June 19, 2006 with net proceeds of $0.6 million. The effect of the asset sales on the operating metrics is shown in the table below:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                             |  |                                                     |  |                                                    |  |                                           
|---------------------------- |  | --------------------------------------------------- |  | -------------------------------------------------- |  | ------------------------------------------
|                             |  | Reduction inmetrics from asset sale March 31, 2006 |  | Reduction inmetrics from asset sale June 30, 2006 |  | Total reduction in metrics fromasset sales
|Operating Data:              |  |                                                     |  |                                                    |  |                                           
|Marketable homes passed      |  | 2,923                                               |  | 888                                                |  | 3,811                                     
|Customers                    |  | 1,302                                               |  | 321                                                |  | 1,623                                     
|Number of connections:       |  |                                                     |  |                                                    |  |                                           
|Cable television             |  | 1,302                                               |  | 321                                                |  | 1,623                                     
|Telephone                    |  |                                                    |  |                                                   |  |                                          
|Broadband Internet and other |  |                                                    |  |                                                   |  |                                          
|                             |  |                                                     |  |                                                    |  |                                           
|Total connections            |  | 1,302                                               |  | 321                                                |  | 1,623                                     
|                             |  |                                                     |  |                                                    |  |                                           



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Results of Operations

The following table sets forth financial data as a percentage of operating revenues.



|                                    |  |                             |    |  |      |   
|----------------------------------- |  | --------------------------- | -- |  | ---- | --
|                                    |  | Three Months EndedMarch 31, |   
|                                    |  | 2006                        |    |  | 2007 |   
|Consolidated Financial Data:        |  |                             |    |  |      |   
|Operating revenues:                 |  |                             |    |  |      |   
|Cable television                    |  | 29                          | %  |  | 32   | % 
|Telephone                           |  | 31                          |    |  | 29   |   
|Broadband Internet and other        |  | 16                          |    |  | 17   |   
|                                    |  |                             |    |  |      |   
|Bundled services                    |  | 76                          |    |  | 78   |   
|Broadband transport services        |  | 5                           |    |  | 5    |   
|Network services                    |  | 19                          |    |  | 17   |   
|                                    |  |                             |    |  |      |   
|Total operating revenues            |  | 100                         |    |  | 100  |   
|                                    |  |                             |    |  |      |   
|Operating expenses:                 |  |                             |    |  |      |   
|Cost of revenues                    |  | 35                          |    |  | 34   |   
|Selling, general and administrative |  | 50                          |    |  | 46   |   
|Depreciation and amortization       |  | 29                          |    |  | 27   |   
|                                    |  |                             |    |  |      |   
|Total operating expenses            |  | 114                         |    |  | 107  |   
|                                    |  |                             |    |  |      |   
|Operating loss                      |  | (14                         | )  |  | (7   | ) 
|Other income (expense):             |  |                             |    |  |      |   
|Interest income                     |  |                            |    |  | 1    |   
|Interest expense                    |  | (11                         | )  |  | (14  | ) 
|Gain on sale of assets              |  | 4                           |    |  |     |   
|                                    |  |                             |    |  |      |   
|Total other expense                 |  | (7                          | )  |  | (13  | ) 
|                                    |  |                             |    |  |      |   
|Net loss                            |  | (21                         | )% |  | (20  | )%
|                                    |  |                             |    |  |      |   

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2007

Operating Revenues.Our operating revenues for the three months ended March 31, 2006 and 2007 were $47.6 million and $48.4 million,
respectively, an increase of $0.8 million, or 2%. This increase was driven primarily by a $1.9 million increase in bundled services revenue, partially offset by a $1.2 million decrease in our revenues from network services.

Operating revenues for our bundled services for the three months ended March 31, 2006 and 2007 were $35.9 million and $37.8 million, respectively,
an increase of $1.9 million, or 5%. The increased revenues from bundled services were primarily due to growth in the number of connections, from 286,146 as of March 31, 2006 to 300,790 as of March 31, 2007, and, to a lesser extent, from
the cable rate increases described below. The additional connections and revenues resulted primarily from the continued increase in penetration of existing marketable homes and to a lesser extent, sales to new marketable homes built during the
period from April 1, 2006 through March 31, 2007.

Operating revenues for cable television services for the three months ended
March 31, 2006 and 2007 were $13.8 million and $15.5 million, respectively, an increase of $1.7 million, or 12%. Approximately 49% of the $1.7 million increase in cable television services revenues was due to our annual rate increase, which
occurred in January 2007, with the remainder due to increased connections and an increased number of customers adding premium services and advanced services, such as HD and DVR.

Operating revenues for telephone services for the three months ended March 31, 2006 and 2007 were $14.7 million and $14.0 million, respectively, a
decrease of $0.7 million, or 5%, due to a 5% decrease in average monthly revenue per unit. Of the decrease in average monthly revenue per unit, approximately 41% was due to a regulatory mandated reduction in meet point billing access rates.

Operating revenues for broadband Internet and other services for the three months ended March 31, 2006 and 2007 were $7.4 million and
$8.3 million, respectively, an increase of $0.9 million, or 12%, primarily due to a 15% increase in connections related to residential high speed service and business Ethernet service.

Operating revenues for our broadband transport services for the three months ended March 31, 2006 and 2007 were $2.3 million and $2.4 million,
respectively, an increase of $0.1 million, or 4%, primarily due to moderate customer growth.



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Revenues from network services for the three months ended March 31, 2006 and 2007 were $9.4 million
and $8.2 million, respectively, a decrease of $1.2 million, or 13%. This decrease was driven by three factors. First, we experienced a decrease in carrier switched services revenue, which fell by $0.5 million, as a result of a decrease in volume.
Second, revenue from data services decreased $0.5 million due to a decrease in volume to Internet service providers including a $0.2 million decrease in reciprocal compensation revenue due to a regulatory mandated reduction. Finally, revenue from
managed services, primarily national directory assistance service, decreased approximately $0.1 million.

Cost of Revenues.Our cost
of revenues for the three months ended March 31, 2006 and 2007 were flat at $16.5 million. Cost of revenues as a percentage of revenues was 35% for the three months ended March 31, 2006, compared with 34% for the three months ended
March 31, 2007. Cost of revenues related to cable television programming costs increased approximately $0.9 million while access fees and other fees that we pay to other carriers to carry calls outside our networks as well as national directory
assistance fees decreased approximately $0.9 million.

Selling, General and Administrative Expense. Our selling, general and
administrative expense for the three months ended March 31, 2006 and 2007 was $23.8 million and $22.3 million, respectively, a decrease of $1.5 million, or 6%. Selling, general and administrative expense decreased as a percentage of revenues
from 50% to 46%. The decrease in selling, general and administrative expense is primarily the result of cost savings in software license fees, professional services fees, temporary labor charges, as well as a decrease in bad debt expense, utilities,
repair and maintenance and a portion of a sales tax refund. We expect our selling, general and administrative expense to continue to decrease during each quarter of 2007 compared to the comparable quarter of 2006 as we stabilize the management team,
focus on cost reductions and gain efficiencies.

Depreciation and Amortization Expense. Our depreciation and amortization expense
for the three months ended March 31, 2006 and 2007 was $13.9 million and $13.0 million, respectively, a decrease of $0.9 million, or 6%. The decrease was primarily due to a $0.7 million reduction in depreciation relating to a sales tax refund
as a result of a review of vendor invoices in the years 2004 and 2005. Because a portion of the sales taxes associated with those invoices were capitalized as property and equipment and were partially depreciated, $0.7 million of the refund was
applied as a reduction of depreciation expense.

Interest Expense. For the three months ended March 31, 2006 and 2007, our
interest expense, which includes interest incurred net of capitalized interest, was $5.1 million and $6.7 million, respectively, an increase of $1.6 million, or 31%. Our interest expense increased primarily due to the private placement of an
additional $32 million of senior notes in March 2006 as well as a decrease in capitalized interest expense. For the three months ended March 31, 2006 and 2007, we had capitalized interest of $0.6 million and $0.2 million, respectively, a
decrease of $0.4 million, or 67%.

Gain on Sale of Assets. For the three months ended March 31, 2006, our gain on sale of
assets was $1.9 million related to the March 31, 2006 closing on the sale of off-net MDU assets in Dallas for net proceeds of $1.9 million.

EBITDA/Adjusted EBITDA

We measure our operating performance on income before interest income, interest expense, income
taxes, depreciation and amortization, referred to as EBITDA. EBITDA is not a measure of financial performance under GAAP. We believe EBITDA is often a useful measure of a companys operating performance and is a significant basis
used by our management to measure the operating performance of our business.

Because we have funded the build-out of our networks by
raising and expending large amounts of capital, our results of operations reflect significant charges for depreciation, amortization, and interest expense. EBITDA, which excludes this information, provides helpful information about the operating
performance of our business, apart from the expenses associated with our physical plant or capital structure. We manage all areas of our business to generate positive EBITDA, and when we have choices about the market or area in which to best deploy
our resources we generally direct our resources towards the network construction that is expected to generate the most EBITDA. EBITDA is frequently used as a basis for comparing businesses in our industry, although our measure of EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA does not purport to represent operating loss or cash flow from operating activities, as those terms are defined under GAAP, and should not be considered as an alternative to those
measurements as an indicator of our performance.

The company believes amortization of debt issuance costs and non-cash stock-based
compensation are similar to amortization or interest expense, in that it is more useful to report EBITDA net of these amounts to better measure operating performance in comparison to prior periods. However, because of the nature of these charges,
the company is referring to EBITDA, net of amortization of debt issuance costs, goodwill impairments, and non-cash stock-based compensation charges, as Adjusted EBITDA.



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Because a significant portion of our cost of revenues and overhead expenses are generally fixed in
nature, increasing revenue should result in further increases in EBITDA/Adjusted EBITDA and in EBITDA/Adjusted EBITDA as a percentage of revenues. To the extent the increased revenues are from adding residential and business customers for our
bundled services, which have higher gross margins than network services, EBITDA/Adjusted EBITDA should increase more quickly on a percentage basis. Adjusted EBITDA totaled $9.3 million during the three months ended March 31, 2006, which
included a $1.9 million gain on sale of assets, compared to $9.5 million during the three months ended March 31, 2007.

The
reconciliation of EBITDA/Adjusted EBITDA to net loss is as follows:



|                                                                |  |                             |        |   |      |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                |  | Three Months EndedMarch 31, |       
|                                                                |  | 2006                        |        |   | 2007 |  
|                                                                |  | (in thousands)              |       
|Net loss, as reported                                           |  | $                           | (9,636 | ) |      | $ | (9,736 | )
|Add back non-EBITDA/Adjusted EBITDA items included in net loss: |  |                             |        |   |      |   |        |  
|Interest income                                                 |  |                             | (141   | ) |      |   | (433   | )
|Interest expense                                                |  |                             | 5,106  |   |      |   | 6,669  |  
|Taxes                                                           |  |                             | 75     |   |      |   | (131   | )
|Depreciation and amortization                                   |  |                             | 13,882 |   |      |   | 13,044 |  
|                                                                |  |                             |        |   |      |   |        |  
|EBITDA                                                          |  |                             | 9,286  |   |      |   | 9,413  |  
|Stock-based compensation expense                                |  |                             | 33     |   |      |   | 117    |  
|                                                                |  |                             |        |   |      |   |        |  
|Adjusted EBITDA(1)                                              |  | $                           | 9,319  |   |      | $ | 9,530  |  
|                                                                |  |                             |        |   |      |   |        |  



| | (1) | Adjusted EBITDA includes gain on sale of assets of $1.9 million during the three months ended March 31, 2006.
| | --- | -------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Sources and
Uses of Funds

Since inception, we have been funded primarily with private equity investments and issuance of debt securities.
Between February 2000 and October 2003, we completed a series of private placements of our preferred stock, raising aggregate gross proceeds of $338.2 million from the sale of our capital stock. The net proceeds from these private placements were
used to fund our network build-out, operations, and our acquisitions. As a result of equity investments and our merger with ClearSource in 2002, where stock was used as consideration, we now have $509 million of total invested equity capital and a
base of over 20 institutional private equity investors.

We have also raised net proceeds of approximately $155.0 million from the sale of
our senior notes since March 2004. On March 23, 2004, we issued $136.0 million principal amount at maturity of senior notes and in March 2006, we raised net proceeds of approximately $30.5 million in a private placement of an additional $32
million in aggregate principal amount of senior notes. Interest on the senior notes is payable semi-annually each April 1 and October 1. We used a portion of the net proceeds from the sale of the senior notes in 2004 to repay all amounts
outstanding under our then-existing senior credit facility. The senior credit facility was terminated upon repayment and the Company recorded $2.1 million of debt extinguishment expenses, including accelerated amortization of debt issuance costs and
other expenses of $1.5 million in 2005 relating to the termination. We are using the net proceeds from the sale of the additional senior notes in March 2006 for capital expenditures and working capital purposes.

During May 2007, the Company completed new financing of up to $3.5 million on a secured credit facility with a term of 24 months, which will be available
to support the Companys purchase of network equipment. The financing is secured by the network equipment purchased from the proceeds of the facility and includes interest at an effective rate of approximately 15.3% with monthly payments based
on 4.2% multiplied by the total amounts drawn for network equipment purchases. The first draw of approximately $3.1 million occurred on May 4, 2007. This financing is permitted under the Indenture.

At March 31, 2007, we had total cash and cash equivalents of $43.8 million and $176.9 million of long-term debt outstanding, net of current portion,
and net of discounts of $6.9 million. In April 2007, we paid $11.8 million of interest due on our senior notes.



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As of March 31, 2007, we had net working capital of $16.5 million, compared to net working capital
of $20.2 million as of December 31, 2006. The $3.7 million decrease in working capital resulted primarily from the following:



| |  |  | an increase of $4.0 million in accrued liabilities; and
| | - |  | -------------------------------------------------------



| |  |  | an increase of $0.6 million in deferred revenue; partially offset by
| | - |  | --------------------------------------------------------------------



| |  |  | an increase of $0.9 million in prepaid expenses.
| | - |  | ------------------------------------------------

Our primary sources of liquidity are cash on hand and cash flows from operating activities. Provided that we meet our cash flow projections in our current business plan, we expect that we will not require additional
financing and that we will manage our cash position above $20 million in accordance with the covenant set forth in the Indenture over the next twelve months. This covenant prohibits our making capital expenditures relating to the build-out of new or
additional parts of our network if such expenditures would result in us having less than $20 million in cash and cash equivalents. Our business plan is based on estimates regarding expected future costs and expected revenues. Our costs may exceed or
our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds to complete construction in our markets, which would require us to seek
additional financing.

We may need additional financing to fund our operations or to undertake initiatives not contemplated by our business
plan or obtain additional cushion against possible shortfalls. We also may pursue additional financing as opportunities arise. Future financings may include a range of different sizes or types of financing, including the sale of additional debt or
equity securities. However, we may not be able to raise additional funds on favorable terms or at all. Our ability to obtain additional financing depends on several factors, including future market conditions; our success or lack of success in
penetrating our markets and growing our overall income; our future creditworthiness; and restrictions contained in agreements with our investors or lenders, including the restrictions contained in the Indenture. These financings could increase our
level of indebtedness or result in dilution to our equity holders. Additionally, we currently cannot call our existing senior notes until April 2008, which limits our near term ability to refinance our senior notes in the event better pricing and
terms were available to us in the market.

Cash Flows from Operating Activities

Net cash provided by operations totaled $4.6 million and $7.6 million for the three months ended March 31, 2006 and 2007, respectively. The net cash
flow activity related to operations consists primarily of our operating results adjusted by changes in operating assets and liabilities and non-cash transactions including:



| |  |  | depreciation, amortization and accretion expense;
| | - |  | -------------------------------------------------



| |  |  | non-cash compensation expense;
| | - |  | ------------------------------



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



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



| |  |  | loss (gain) on sale of assets.
| | - |  | ------------------------------

Depreciation and amortization for the three months ended March 31, 2006 and 2007 was $13.9 million and $13.0 million, respectively. Gains on the sale of fixed assets for the three months ended March 31, 2006 were $1.9 million.
Other non-cash charges for the three months ended March 31, 2006 and 2007 were $1.4 million and $1.2 million, respectively.

As of
March 31, 2007, accrued liabilities included $11.8 million related to the interest due on our senior notes, which was subsequently paid on April 2, 2007.

Cash Flows from Investing Activities

Our net cash used in investing activities for the three
months ended March 31, 2006 and 2007 was $4.9 million and $6.8 million, respectively. These net cash outflows are primarily due to the build-out of our network in both 2006 and 2007. Cash flows used in investing activities for the three months
ended March 31, 2006 and 2007 consisted primarily of $7.3 million and $8.0 million in property, plant and equipment purchases, respectively, partially offset by $2.5 million and $1.2 million in proceeds, primarily related to the sale of off-net
MDU assets in Dallas and the sales tax refund, respectively.

Cash Flows from Financing Activities

Our net cash provided by (used in) financing activities for the three months ended March 31, 2006 and 2007 was $29.1 million and $(0.9) million,
respectively. Cash flows from financing activities for the three months ended March 31, 2006 consisted primarily of the net proceeds from the private placement of an additional $32 million in aggregate principal amount



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of senior notes. Cash flow from financing activities for the three months ended March 31, 2007 consisted primarily of $1.3 million in payments on
capital leases.

Capital Expenditures

We had capital expenditures of approximately $7.3 million and $8.0 million, including capitalized interest, during the three months ended March 31, 2006 and 2007, respectively. The Indenture prohibits us from making capital
expenditures when the aggregate amount of cash and cash equivalents held by us (after giving effect to such planned capital expenditure) would be less than $20 million. The capital expenditures amounts described above relate to network construction;
initial installation costs; the purchase of customer premise equipment, such as cable set-top boxes and cable modems; corporate and network equipment, such as switching and transport equipment; and billing and information systems.

During the year ending December 31, 2007, the Company intends to manage its capital expenditures in accordance with the covenant set forth in the
Indenture to ensure that cash is not less than $20 million.

Contractual Obligations and Commercial Commitments

During the three months ended March 31, 2007, our aggregate contractual obligations decreased approximately $3.2 million compared to those
previously described in Part II, Item 7 included in Grandes Annual Report on Form 10-K for the year ended December 31, 2006, primarily as a result of payments on capital and operating leases and maintenance and purchase obligations.

Long-term Debt. On March 23, 2004, the Company completed a private placement offering for 136,000 units, with each unit
consisting of (1) $1,000 of senior notes and (2) a warrant to purchase 100.336 shares of common stock. The senior notes accrue interest at the rate of 14% per annum with the interest payable semi-annually in cash in arrears on
April 1 and October 1. On March 24, 2006, we raised net proceeds of approximately $30.5 million in a private placement of an additional $32.0 million in aggregate principal amount of senior notes. These additional notes were issued
under the Indenture and are part of the same series of senior notes as those issued in March 2004.

The Indenture contains covenants that,
among other things, limit our ability to:



| |  |  | incur additional indebtedness, issue disqualified capital stock (as defined in the Indenture) and, in the case of our restricted subsidiary, issue preferred stock;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | pay dividends on, redeem or repurchase our capital stock or make other restricted payments;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | make investments in other companies;
| | - |  | ------------------------------------



| |  |  | enter into transactions with affiliates;
| | - |  | ----------------------------------------



| |  |  | enter into sale and leaseback transactions;
| | - |  | -------------------------------------------



| |  |  | sell or make dispositions of assets;
| | - |  | ------------------------------------



| |  |  | place restrictions on the ability of our subsidiary to pay dividends or make other payments to us; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | engage in certain business activities.
| | - |  | --------------------------------------

In addition,
the Indenture contains a covenant restricting our capital expenditures relating to the build-out of new or additional parts of our network if such expenditures would result in us having less than $20 million in cash and cash equivalents.

The Indenture also contains customary events of default, including nonpayment of principal or interest, violations of covenants, cross default and
cross acceleration to certain other indebtedness and material judgments and liabilities.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. To prepare these financial statements, we must make estimates, judgments and
assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and
liabilities. We periodically evaluate our estimates and assumptions and base our estimates and assumptions on our best knowledge of current events and actions we may undertake in the future. Actual results may ultimately differ from these estimates.

There have been no material changes to the critical accounting policies and estimates previously described in Part II, Item 7
included in Grandes Annual Report on Form 10-K for the year ended December 31, 2006.



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##### Table of Contents

ITEM 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk relates primarily to
changes in interest rates on our investment portfolio. Our marketable investments consist primarily of short-term fixed income securities. We invest only with high credit quality issuers and we do not use derivative financial instruments in our
investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material impact on the fair value of our investment portfolio.

ITEM 4.    
CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer, who is our
principal executive officer, and our Chief Financial Officer, who is our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e), as applicable, under
the Securities Exchange Act of 1934) as of March 31, 2007. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to
material information relating to Grande, including its consolidated subsidiary, required to be included in this report and the other reports that we file or submit under the Securities Exchange Act of 1934.

During the three months ended March 31, 2007, there were no changes in our internal control over financial reporting that have materially affected,
or that are reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II

OTHER INFORMATION

ITEM 1.    
LEGAL PROCEEDINGS

We are subject to litigation in the normal course of our business. However, there are no
pending proceedings, which are currently anticipated to have a material adverse effect on our business, financial condition or results of operations.

ITEM 1A.    
RISK FACTORS

There have been no material changes to the risk factors previously described in Part I,
Item 1A included in Grandes Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 2.    
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.    
DEFAULTS UPON SENIOR SECURITIES

None

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

There were no matters submitted to a vote of security
holders of Grande during the three months ended March 31, 2007.

ITEM 5.    
OTHER INFORMATION

None

ITEM 6.    
EXHIBITS

Unless designated by an asterisk indicating that such document has been filed herewith, the Exhibits
listed below have been heretofore filed by the Company pursuant to Section 13 or 15(d) of the Exchange Act and are hereby incorporated herein by reference to the pertinent prior filing.



|            |  |                                                                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                 
|            | 
|3.1         |  | Restated Certificate of Incorporation of Grande Communications Holdings, Inc. (previously filed as exhibit 3.1 to Form 10-K dated March 31, 2006).                                                          
|            | 
|3.2         |  | Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.2 to Form S-1 dated May 18, 2004).                                                                                            
|            | 
|3.3         |  | Amendment No. 1 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.3 to Form 10-Q dated November 5, 2004).                                                                    
|            | 
|3.4         |  | Amendment No. 2 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.4 to Form 10-K dated March 30, 2007).                                                                      
|            | 
|10.1+       |  | Employment Agreement, entered into as of May 2, 2007, by and between Grande Communications Networks, Inc. and William C. Chad Jones, Jr. (previously filed as exhibit 10.1 to Form 8-K
dated May 8, 2007).
|            | 
|24*         |  | Power of Attorney of Grande Communications Holdings, Inc. (included on signature page).                                                                                                                     
|            | 
|31.1*       |  | Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sabanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                               
|            | 
|31.2*       |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                                            
|            | 
|32.1*       |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).                                                



---

|* | Filed herewith.
|- | ---------------

|+ | Management compensatory plan or agreement.
|- | ------------------------------------------



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SIGNATURES

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



|                   |  |  |  |                                                   |  |     |  |                                                                                                     
|------------------ |  |  |  | ------------------------------------------------- |  | --- |  | ----------------------------------------------------------------------------------------------------
|                   |  |  |  | Grande Communications Holdings, Inc. (Registrant)
|                   |  |  |  |                                                  
|Date: May 11, 2007 |  |  |  |                                                   |  | By: |  | /s/    MICHAEL L.
WILFLEY                                                                           
|                   |  |  |  |                                                   |  |     |  | Michael L. Wilfley Chief Financial Officer (Duly Authorized Officer and Principal Financial
Officer)



18