UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


_____________





FORM
10-Q


_____________





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





For the
Quarterly Period Ended March 31, 2008





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


_____________


Grande
Communications Holdings, Inc.


(Exact
name of registrant as specified in its charter)


_____________





Delaware
            74-3005133(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification 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  T    No  £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
accelerated filer  £     Accelerated
filer  £     Non-accelerated
filer  T     Smaller
reporting company  £





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





The
number of shares of the registrant’s Common Stock outstanding as of April 30,
2008 was 12,752,572.













GRANDE COMMUNICATIONSHOLDINGS, INC. AND SUBSIDIARY


Index





Page
      No.Part
      I.
            Financial Information
            1Item
      1.
            Financial Statements
            1Condensed Consolidated Balance Sheets
            1Condensed Consolidated Statements of
    Operations
            2Condensed Consolidated Statements of Cash
    Flows
            3Notes to Condensed Consolidated Financial
      Statements
            4Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            7Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            15Item
      4.
            Controls and Procedures
            15Part
      II.
            Other Information
            16Item
      1.
            Legal Proceedings
            16Item
      1A.
            Risk Factors
            16Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            16Item
      3.
            Defaults Upon Senior Securities
            16Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            16Item
      5.
            Other Information
            16Item
      6.
            Exhibits
            16Signatures
            
            18





Index




PART I




FINANCIAL
INFORMATION





ITEM 1.   FINANCIAL STATEMENTS





GRANDE COMMUNICATIONSHOLDINGS, INC. AND SUBSIDIARY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except share data)





December 31,
2007
            
            
            March 31, 2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents, net of restricted cash of $3,129
            
            $
            48,138
            
            
            $
            46,487Accounts
      receivable, net of allowance for doubtful accounts of $1,138 and
      $1,109
            
            
            17,793
            
            
            
            15,875Prepaid
      expenses
            
            
            1,867
            
            
            
            2,820Total
      current assets
            
            
            67,798
            
            
            
            65,182Property,
      plant and equipment, net of accumulated depreciation of $313,526 and
      $327,498
            
            
            249,310
            
            
            
            243,131Intangible
      assets, net of accumulated amortization of $1,417 and
    $1,478
            
            
            1,398
            
            
            
            1,337Debt
      issue costs, net
            
            
            4,255
            
            
            
            3,992Restricted
      cash and other assets
            
            
            3,482
            
            
            
            3,484Total
      assets
            
            $
            326,243
            
            
            $
            317,126Liabilities
      and stockholders’ equityCurrent
      liabilities:Accounts
      payable
            
            $
            13,809
            
            
            $
            13,376Accrued
      liabilities
            
            
            15,328
            
            
            
            13,117Accrued
      interest payable
            
            
            6,755
            
            
            
            13,510Deferred
      revenue
            
            
            6,996
            
            
            
            7,313Current
      portion of long-term debt
            
            
            1,612
            
            
            
            1,674Current
      portion of capital lease obligations
            
            
            3,548
            
            
            
            3,175Total
      current liabilities
            
            
            48,048
            
            
            
            52,165Deferred
      rent
            
            
            1,228
            
            
            
            1,228Deferred
      revenue
            
            
            4,377
            
            
            
            4,412Capital
      lease obligations, net of current portion
            
            
            13,592
            
            
            
            13,112Long
      term debt, net of current portion
            
            
            189,994
            
            
            
            189,851Total
      liabilities
            
            
            257,239
            
            
            
            260,768Stockholders’
      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 $134,999,787
            
            
            35
            
            
            
            35Junior
      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 $232,617,838
            
            
            233
            
            
            
            233Series
      B preferred stock, $0.001 par value per share; 20,833,333 shares
      authorized, issued and outstanding; liquidation preference of
      $25,000,000
            
            
            21
            
            
            
            21Series
      C preferred stock, $0.001 par value per share; 30,000,000 shares
      authorized, 17,005,191 shares issued and outstanding; liquidation
      preference of $20,406,229
            
            
            17
            
            
            
            17Series
      D preferred stock, $0.001 par value per share; 115,384,615 shares
      authorized, 114,698,442 shares issued and outstanding; liquidation
      preference of $149,107,975
            
            
            115
            
            
            
            115Series
      E preferred stock, $0.001 par value per share; 8,000,000 shares
      authorized, 7,999,099 shares issued and outstanding; liquidation
      preference of $19,997,748
            
            
            8
            
            
            
            8Series
      F preferred stock, $0.001 par value per share; 12,307,792 shares
      authorized, 11,758,278 shares issued and outstanding; liquidation
      preference of $15,285,761
            
            
            12
            
            
            
            12Series
      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,
      13,175,940 and 13,252,572 shares issued, 12,675,940 and 12,752,572 shares
      outstanding, as of December 31, 2007 and March 31, 2008,
      respectively
            
            
            13
            
            
            
            13Additional
      paid-in capital
            
            
            509,312
            
            
            
            509,430Treasury
      stock, at cost
            
            
            (5
            )
            
            
            (5
            )Accumulated
      deficit
            
            
            (440,757
            )
            
            
            (453,521
            )Total
      stockholders’ equity
            
            
            69,004
            
            
            
            56,358Total
      liabilities and stockholders’ equity
            
            $
            326,243
            
            
            $
            317,126





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





1
 Index




GRANDE COMMUNICATIONSHOLDINGS, INC. AND SUBSIDIARY




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


(In
thousands, except per share data)





Three Months Ended
      March 31,2007
            
            
            2008Operating
      revenues
            
            $
            48,395
            
            
            $
            49,886Operating
      expenses:Cost
      of revenues (excluding depreciation and amortization)
            
            
            16,528
            
            
            
            16,855Selling,
      general and administrative
            
            
            21,505
            
            
            
            22,790Provision
      for doubtful accounts
            
            
            513
            
            
            
            624Depreciation
      and amortization
            
            
            13,044
            
            
            
            14,669Total
      operating expenses
            
            
            51,590
            
            
            
            54,938Operating
      loss
            
            
            (3,195
            )
            
            
            (5,052
            )Other
      income (expense):Interest
      income
            
            
            433
            
            
            
            329Interest
      expense, net of capitalized interest
            
            
            (6,669
            )
            
            
            (7,792
            )Gain
      (loss) on sale/disposal of assets
            
            
            (25
            )
            
            
            30Total
      other income (expense)
            
            
            (6,261
            )
            
            
            (7,433
            )Loss
      before income tax expense
            
            
            (9,456
            )
            
            
            (12,485
            )Income
      tax expense
            
            
            (280
            )
            
            
            (279
            )Net
      loss
            
            $
            (9,736
            )
            
            $
            (12,764
            )Basic
      and diluted net loss per share
            
            $
            (0.77
            )
            
            $
            (1.00
            )Basic
      and diluted weighted average number of common shares
      outstanding
            
            
            12,592
            
            
            
            12,733





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





2
 Index




GRANDE COMMUNICATIONSHOLDINGS, INC. AND SUBSIDIARY




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


(In
thousands)





Three Months Ended
      March 31,2007
            
            
            2008Cash
      flows from operating activities:Net
      loss
            
            $
            (9,736
            )
            
            $
            (12,764
            )Adjustment
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
            
            
            12,981
            
            
            
            14,608Amortization
      of intangible assets
            
            
            63
            
            
            
            61Amortization
      of deferred financing costs
            
            
            252
            
            
            
            263Provision
      for doubtful accounts
            
            
            513
            
            
            
            624Amortization
      of debt discounts/premiums
            
            
            305
            
            
            
            299Non-cash
      compensation expense
            
            
            117
            
            
            
            113Net
      (gain) loss on sale/disposal of assets
            
            
            25
            
            
            
            (30
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (500
            )
            
            
            1,294Prepaid
      expenses and other assets
            
            
            (877
            )
            
            
            (955
            )Accounts
      payable
            
            
            (140
            )
            
            
            100Accrued
      liabilities and interest payable
            
            
            4,047
            
            
            
            4,544Deferred
      revenue
            
            
            508
            
            
            
            440Deferred
      rent
            
            
            (4
            )
            
            
            —Net
      cash provided by operating activities
            
            
            7,554
            
            
            
            8,597Cash
      flows from investing activities:Purchases
      of property, plant and equipment
            
            
            (7,978
            )
            
            
            (8,545
            )Proceeds
      from sale of assets
            
            
            86
            
            
            
            84Proceeds
      from sales tax refunds
            
            
            1,130
            
            
            
            —Net
      cash used in investing activities
            
            
            (6,762
            )
            
            
            (8,461
            )Cash
      flows from financing activities:Payments
      of long-term debt and capital lease obligations
            
            
            (1,275
            )
            
            
            (1,259
            )Net
      borrowings (repayments) on zero-balance cash account
            
            
            379
            
            
            
            (533
            )Other
      financing activity
            
            
            —
            
            
            
            5Net
      cash used in financing activities
            
            
            (896
            )
            
            
            (1,787
            )Net
      change in cash and cash equivalents
            
            
            (104
            )
            
            
            (1,651
            )Cash
      and cash equivalents, beginning of period
            
            
            43,948
            
            
            
            48,138Cash
      and cash equivalents, end of period
            
            $
            43,844
            
            
            $
            46,487Non-cash
      investing and financing activity:Capital
      lease obligations
            
            $
            —
            
            
            $
            26





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





3
 Index





GRANDE COMMUNICATIONSHOLDINGS, 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 a bundled package of cable television (“video”), telephone (“voice”),
and broadband Internet (“HSD”) and other services to residential and small and
medium-sized business customers in Texas. 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.  The Company also provides network services by offering
telecommunications and HSD products to medium and large enterprises and
communications carriers within 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,
2007 and 2008, and for the three months ended March 31, 2007 and 2008. Operating
results for the three months ended March 31, 2008 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2008. The
December 31, 2007 balance sheet is derived from the audited financial statements
for the year ended December 31, 2007. These interim financial statements should
be read in conjunction with the consolidated financial statements for the year
ended December 31, 2007 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, 2007 on Form 10-K filed
with the SEC on March 31, 2008.





The
consolidated financial statements include the accounts of Grande Communications
Holdings, Inc.’s wholly owned subsidiary.  All inter-company
transactions and balances have been eliminated. Preparation of financial
statements in conformity with U.S. generally accepted accounting principles
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.





Newly
Adopted Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, Fair Value
Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value in applying generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157
applies whenever an entity is measuring fair value under other accounting
pronouncements that require or permit fair value measurement. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, however in February 2008, the FASB issued FASB Staff Position
No. 157-2, Effective Date of
FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 provides a one year
deferral of the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for certain items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually).  SFAS 157 was effective for the Company on January 1,
2008. The adoption of SFAS 157 did not have an impact on the consolidated
financial statements because the Company has no financial or nonfinancial assets
or liabilities recorded at fair value on a recurring basis.





In
February 2006, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115(“SFAS 159”). SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. Unrealized gains and losses on
items for which the fair value option has been elected are reported in earnings.
SFAS 159 does not affect any existing accounting literature that requires
certain assets and liabilities to be carried at fair value. SFAS 159 was
effective for the Company on January 1, 2008. The Company did not apply the fair
value option therefore; SFAS 159 did not have an impact on the consolidated
financial statements.





4
 Index





2.
Reclassifications





Certain
reclassifications have been made to the condensed consolidated statements of
operations for the three months ended March 31, 2007 to conform to the
classifications used in the current period. In the condensed consolidated
statements of operations, for the three months ended March 31, 2007, Texas gross
margin tax expense of $0.3 million and provision for doubtful accounts of $0.5
million, previously recorded in the line item “selling, general and
administrative,” have been reclassified as “income tax expense” and “provision
for doubtful accounts,” respectively, for such periods.





3.
Accrued Liabilities





Accrued
liabilities consist of the following:





December 31, 2007
            
            
            March 31, 2008(in
      thousands)Accrued
      property taxes
            
            $
            4,405
            
            
            $
            1,289Accrued
      compensation
            
            
            2,801
            
            
            
            3,403Accrued
      taxes—other
            
            
            2,662
            
            
            
            3,048Accrued
      programming
            
            
            2,587
            
            
            
            2,943Accrued
      other
            
            
            2,873
            
            
            
            2,434Accrued
      liabilities
            
            $
            15,328
            
            
            $
            13,117





4.
Income Taxes





The
Company utilizes the liability method of accounting for income taxes, as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.





The
Company’s effective income tax rate for the interim periods presented is based
on management’s estimate of the Company’s effective tax rate for the applicable
year and differs from the federal statutory income tax rate primarily due to the
impact of the change in state tax law, nondeductible permanent differences,
state income taxes and changes in the valuation allowance for deferred income
taxes. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.





5.
Long Term Debt





14%
Senior Secured Notes





Long-term Debt. In March
2004, the Company completed a private placement offering for 136,000 units, each
consisting of (1) $1,000 of senior notes due April 1, 2011 (“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. The senior notes are
governed by the indenture between the Company and U.S. Bank National
Association, as Indenture Trustee, dated March 23, 2004
(“Indenture”).





In March
2006 and July 2007, the Company raised net proceeds of approximately $30.5
million and $25.8 million, respectively, in a private placement of an additional
$32 million and $25 million, respectively, in aggregate principal amount of
senior notes. These additional senior notes were issued under the Indenture and
are part of the same series of senior notes as those issued in March
2004.





Grande
Communications Holdings, Inc.’s subsidiary, Grande Communications Networks,
Inc., (the “Subsidiary Guarantor”), has unconditionally guaranteed, jointly and
severally, the payment of the principal, premium and interest (including any
additional interest on the senior notes) on a senior secured basis. Grande
Communications Holdings, Inc. is a holding company with no independent assets
and conducts all of its operations through a subsidiary and is therefore
dependent on the receipt of funds from its subsidiary to pay the interest and
principal on the senior notes.  Limitations or restrictions contained
in the Indenture could adversely affect the Company’s ability to make such
payments on the senior notes.





The
senior notes and the Subsidiary Guarantor’s guarantees thereof are secured by a
first priority perfected security interest, subject to certain permitted
encumbrances, in substantially all of the subsidiary’s property and assets,
including substantially all of its property, plant and equipment.





5
 Index





6.
Contingencies





Legal
Proceedings





The
Company is subject to litigation in the normal course of business. However,
there are no pending proceedings that are currently anticipated to have a
material adverse effect on the Company’s 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 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.





7.
Subsequent Events





Interest
Payment





In April
2008, the Company paid $13.5 million of interest due on the senior
notes.





6
 Index





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 “Item 1A Risk Factors” in
our Annual Report on Form 10-K, filed with the SEC on March 31, 2008. Any
forward-looking statements contained in this quarterly report reflect our
current views with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to our operations, results of
operations, growth strategy and liquidity. We have no intention, and disclaim
any obligation, to update or revise any forward-looking statements, whether as a
result of new information, future results or otherwise.





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, 2007, included in our
Annual Report on Form 10-K filed with the SEC on March 31, 2008.





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 a bundled package of cable television (“video”),
telephone (“voice”), and broadband Internet (“HSD”) and other services to
residential and small and medium-sized business customers in
Texas.  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 and 2008, we had the ability to
market services to 338,852 and 340,554 distinct homes and businesses over our
networks, respectively, and had 139,226 and 147,267 residential and business
customers, respectively. Our operating revenues were $48.4 million and $49.9
million for the three months ended March 31, 2007 and 2008,
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 video, voice, and HSD services to customers. Operating revenues
from bundled services were $37.8 million and $41.1 million for the three months
ended March 31, 2007 and 2008, respectively.  We have continued to
grow our bundled services to commercial business customers by 22% to $5.5
million during the three months ended March 31, 2008 compared to $4.5 million
during the three months ended March 31, 2007.





We
believe that an important measure of our growth potential is the number of
marketable homes passed by our networks and the marketable homes we are able to
pass in the future in the markets in which we currently operate. 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 video,
voice and HSD 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 existing 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 fiber optic 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 $2.4 million and $2.6 million for the three months ended March 31, 2007 and
2008, respectively.





7
 Index





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 voice and HSD services and that
still provides wholesale network services to medium and large enterprises and
communications carriers in the wholesale market. Operating revenues for network
services were $8.2 million and $6.2 million for the three months ended March 31,
2007 and 2008, 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
data volume, and personnel that predominately support our core retail business
and its products we have gained efficiencies of scale by offering
telecommunications and HSD products into 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 past
five years as well as for each of the three months ended March 31, 2007 and
2008. See “Non-GAAP Financial Measures” 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.





Recent
Developments





On
January 18, 2008, we issued a press release announcing that our board of
directors has authorized the Company to explore all of its strategic
alternatives to enhance shareholder value.  The board of directors
will work with the Company’s management team and its legal and financial
advisors to evaluate the Company’s available alternatives.  We have
engaged Waller Capital Partners LLC to assist us in exploring strategic
alternatives.  There can be no assurance that the exploration of
strategic alternatives will result in the Company adopting or approving any
strategic alternative.  We undertake no obligation to make any further
announcements regarding the exploration of strategic alternatives unless and
until a final decision is made.





Availability
of Capital





As
described more fully under “Liquidity and Capital Resources” below, our current
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.





Marketable
Homes Passed, Customers and Connections





We report
marketable homes passed as the number of residential and business units, such as
single family 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 and 2008, our
networks passed 338,852 and 340,554 marketable homes, respectively, and we had
139,226 and 147,267 residential and business customers,
respectively.





Because
we deliver multiple services to our customers, we report our total number of
connections for video, voice, HSD and other services in addition to our total
number of customers. We count each video, voice, HSD and other service purchase
as a separate connection. For example, a single customer who purchases video,
voice and HSD service would count as three connections. Similarly, a single
customer who purchases our HSD service and our voice 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
telephone line by a local telephone customer as an additional connection. As of
March 31, 2007 and 2008, we had 300,790 and 315,483 connections,
respectively.





8
 Index





Operating
Data —Bundled Services





Quarter EndedMarch 31,2007
            
            
            June 30,2007
            
            
            September 30,2007
            
            
            December 31,2007
            
            
            March 31,2008Operating
      Data:Marketable
      homes passed
            
            
            338,852
            
            
            
            340,000
            
            
            
            339,678
            
            
            
            340,058
            
            
            
            340,554Customers
            
            
            139,226
            
            
            
            139,558
            
            
            
            144,889
            
            
            
            145,675
            
            
            
            147,267Number
      of connections:Video
            
            
            95,585
            
            
            
            96,582
            
            
            
            98,047
            
            
            
            99,453
            
            
            
            101,481Voice
            
            
            116,679
            
            
            
            116,204
            
            
            
            114,670
            
            
            
            114,303
            
            
            
            115,635HSD
      and other
            
            
            88,526
            
            
            
            90,731
            
            
            
            93,353
            
            
            
            95,125
            
            
            
            98,367Total
      connections
            
            
            300,790
            
            
            
            303,517
            
            
            
            306,070
            
            
            
            308,881
            
            
            
            315,483Average
      monthly revenue per:Customer
      – bundled services
            
            $
            91.07
            
            
            $
            92.80
            
            
            $
            91.12
            
            
            $
            90.64
            
            
            $
            93.49Video
      connection
            
            
            54.56
            
            
            
            55.98
            
            
            
            54.80
            
            
            
            55.78
            
            
            
            57.81Voice
      connection
            
            
            40.04
            
            
            
            40.48
            
            
            
            40.88
            
            
            
            40.34
            
            
            
            40.60HSD
      and other connection
            
            
            31.95
            
            
            
            31.73
            
            
            
            31.58
            
            
            
            32.27
            
            
            
            33.31





Results
of Operations





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





Three Months EndedMarch 31,2007
            
            
            2008Consolidated
      Financial Data:Operating
      revenues:Video
            
            
            32
            %
            
            
            35
            %Voice
            
            
            29
            
            
            
            28HSD
      and other
            
            
            17
            
            
            
            19Bundled
      services
            
            
            78
            
            
            
            82Broadband
      transport services
            
            
            5
            
            
            
            5Network
      services
            
            
            17
            
            
            
            13Total
      operating revenues
            
            
            100
            
            
            
            100Operating
      expenses:Cost
      of revenues (excluding depreciation and amortization)
            
            
            34
            
            
            
            34Selling,
      general and administrative and provision for doubtful
    accounts
            
            
            45
            
            
            
            47Depreciation
      and amortization
            
            
            27
            
            
            
            29Total
      operating expenses
            
            
            106
            
            
            
            110Operating
      loss
            
            
            (6
            )
            
            
            (10
            )Other
      income (expense):Interest
      income
            
            
            1
            
            
            
            1Interest
      expense, net of capitalized interest
            
            
            (14
            )
            
            
            (16
            )Total
      other expense
            
            
            (13
            )
            
            
            (15
            )Loss
      before income tax expense
            
            
            (19
            )
            
            
            (25
            )Income
      tax expense
            
            
            (1
            )
            
            
            (1
            )Net
      loss
            
            
            (20
            )%
            
            
            (26
            )%





Three
Months Ended March 31, 2007 Compared to Three Months Ended March 31,
2008





Operating Revenues.Our
operating revenues for the three months ended March 31, 2007 and 2008 were $48.4
million and $49.9 million, respectively, an increase of $1.5 million, or 3%.
This increase was driven primarily by a $3.3 million increase in bundled
services revenue and a $0.2 million increase in broadband transport services
revenue, partially offset by a $2.0 million decrease in our revenues from
network services.





9
 Index





Operating
revenues for our bundled services for the three months ended March 31, 2007 and
2008 were $37.8 million and $41.1 million, respectively, an increase of $3.3
million, or 9%. The increased revenues from bundled services were primarily due
to a 5% growth in the number of connections, from 300,790 as of March 31, 2007
to 315,483 as of March 31, 2008, 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 businesses and to a lesser extent, sales to new marketable
homes built during the period from April 1, 2007 through March 31,
2008.





Operating
revenues for our video services for the three months ended March 31, 2007 and
2008 were $15.5 million and $17.4 million, respectively, an increase of $1.9
million, or 12%. Approximately 22% of the $1.9 million increase in video
revenues was due to our annual rate increase, which occurred in January 2008,
with the remainder due to increased connections and an increased number of
customers adding premium services and advanced services, such as HD and DVR.
Video services to our commercial business customers increased $0.1 million, or
50%, to $0.3 million during the three months ended March 31, 2008 compared to
$0.2 million during the three months ended March 31, 2007.





Operating
revenues for our voice services for the three months ended March 31, 2007 and
2008 were flat at $14.0 million.  While we have experienced a decrease
in residential voice services due to competitive pressures and changing consumer
preferences, as more customers choose to adopt VoIP products or use their
wireless phones as their primary phone line, our voice services to commercial
business customers have increased $0.3 million, or 9%, to $3.6 million during
the three months ended March 31, 2008 compared to $3.3 million during the three
months ended March 31, 2007.





Operating
revenues for our HSD and other services for the three months ended March 31,
2007 and 2008 were $8.3 million and $9.7 million, respectively, an increase of
$1.4 million, or 17%, primarily due to an 11% increase in the number of
connections as well as a 4% increase in average monthly revenue per connection
as customers choose higher speed service offerings.  HSD services to
our commercial business customers increased $0.6 million, or 60%, to $1.6
million during the three months ended March 31, 2008 compared to $1.0 million
during the three months ended March 31, 2007.





Operating
revenues for our network services for the three months ended March 31, 2007 and
2008 were $8.2 million and $6.2 million, respectively, a decrease of $2.0
million, or 24%.  The decrease was primarily related to a decrease in
volume from transmission services to carriers and other telecommunications
companies.  Common carrier traffic routed to us for termination is
largely dependent on traffic routed to our common carrier customers by their
customers. Competitive pricing pressures, business consolidations, and changing
consumer preferences for voice services continue to evolve in the markets served
by our other common carrier customers. If, as a result, our customers’ traffic
is reduced, or if their competitors’ costs to terminate or originate traffic are
reduced, our traffic will also likely be reduced.





Cost of Revenues.Our cost of
revenues for the three months ended March 31, 2007 and 2008 were $16.5 million
and $16.9 million, respectively, an increase of $0.4 million, or 2%. Cost of
revenues as a percentage of revenues was flat at 34% for each of the three
months ended March 31, 2007 and 2008.  Cost of revenues related to
video services increased approximately $1.3 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 $1.0
million.  The increase in direct costs of video services is primarily
due to programming costs increases, which have been increasing on an aggregate
basis due to an increase in connections and on a per connection basis due to an
increase in costs per channel.  We expect this trend to continue and
may not be able to pass these higher costs on to customers because of
competitive factors, which could adversely affect our operations.  The
decrease in access and other carrier fees related to costs that are variable
usage-based costs that decrease as customer usage decreases.





Selling, General and Administrative
Expense. Our selling, general and administrative expense for the three
months ended March 31, 2007 and 2008 was $21.5 million and $22.8 million,
respectively, an increase of $1.3 million, or 6%. Selling, general and
administrative expense increased as a percentage of revenues from 45% to 47%.
Increases related to employee benefits, primarily healthcare costs, network
repairs and maintenance, utilities, software licensing fees, and other
miscellaneous expenses that totaled approximately $1.9 million but such
increases were partially offset by decreases in property tax and employee
compensation, reductions in contract labor charges and other miscellaneous
expenses that totaled approximately $0.6 million. For the year ending December
31, 2008, we expect our selling, general and administrative expense to decrease
as compared to the year ended December 31, 2007 as we continue to focus on cost
reductions and gain efficiencies.





Depreciation and Amortization
Expense. Our depreciation and amortization expense for the three months
ended March 31, 2007 and 2008 was $13.0 million and $14.7 million, respectively,
an increase of $1.7 million, or 13%. The increase was partially due to a 2007
sales tax refund of $0.7 million that was applied as a reduction to depreciation
expense during the three months ended March 31, 2007.  The remaining
increase is related to property, plant and equipment additions during the period
from April 1, 2007 through March 31, 2008, primarily for customer premise
equipment, long haul fiber optic network upgrades and capitalized labor
expenses.  Partially offsetting the increase related to these
additions were decreases in depreciation expense related to sales and
dispositions as well as certain assets that became fully depreciated during the
period from April 1, 2007 through March 31, 2008.





10
 Index





Interest Expense. For the
three months ended March 31, 2007 and 2008, our interest expense, which includes
interest incurred net of capitalized interest, was $6.7 million and $7.8
million, respectively, an increase of  $1.1 million, or 16%. Our
interest expense increased primarily due to the private placement of an
additional $25.0 million of senior notes in the third quarter of
2007.





Non-GAAP
Financial Measures





We
measure our operating performance on earnings 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. A limitation of this measure, however, is that it does not reflect
the periodic costs of certain capitalized tangible and intangible assets used in
generating revenues in our businesses. 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 non-cash stock-based compensation is similar to amortization
and interest expense, in that it is more useful to report EBITDA net of this
amount 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 non-cash stock-based compensation charges as “Adjusted
EBITDA.”





Adjusted
EBITDA was $9.5 million and $9.8 million during the three months ended March 31,
2007 and 2008, respectively, an increase of $0.3 million, or 3%. The increase
was primarily due to a $1.5 million increase in revenues partially offset by a
$1.0 million combined increase in provision for doubtful accounts and selling,
general and administrative expenses, excluding stock-based compensation and
franchise tax benefit, and a $0.3 million increase in costs of
revenues.





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 the result of 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.





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





Three Months EndedMarch 31,2007
            
            
            2008(in
      thousands)Net
      loss, as reported
            
            $
            (9,736
            )
            
            $
            (12,764
            )Add
      back non-EBITDA/Adjusted EBITDA items included in net
loss:Interest
      income
            
            
            (433
            )
            
            
            (329
            )Interest
      expense, net of capitalized interest
            
            
            6,669
            
            
            
            7,792Income
      tax expense
            
            
            280
            
            
            
            279Franchise
      tax benefit
            
            
            (411
            )
            
            
            —Depreciation
      and amortization
            
            
            13,044
            
            
            
            14,669EBITDA
            
            
            9,413
            
            
            
            9,647Stock-based
      compensation expense
            
            
            117
            
            
            
            113Adjusted
      EBITDA
            
            $
            9,530
            
            
            $
            9,760





11
 Index





Liquidity
and Capital Resources





Sources
and Uses of Funds





Since
inception, we have been funded primarily with private equity investments and
issuances of debt securities. Our current primary sources of liquidity are cash
on hand and cash flows from operating activities.





As of
March 31, 2008, we had total cash and cash equivalents of $46.5 million and
$203.0 million of long-term debt and capital lease obligations outstanding, net
of current portion, and net of discounts and premiums of $4.7 million. In April
2008, we paid $13.5 million of interest due on our senior notes.





As of
March 31, 2008, we had net working capital of $13.0 million, compared to net
working capital of $19.8 million as of December 31, 2007.  The $6.8
million decrease in working capital resulted primarily from a $6.8 million
increase in accrued interest payable as well as a $2.6 million decrease in
current assets partially offset by a $2.6 million net decrease in other current
liabilities.





Provided
that we meet our cash flow projections in our current business plan, we expect
that our available cash and cash equivalents and cash generated from operations
will be sufficient to fund our existing operations, planned capital spending and
other commitments over the next twelve months. We believe 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, 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 can call our existing senior notes at any time giving us the near term
ability to refinance our bonds in the event better pricing and terms were
available to us in the market.





Cash
Flows from Operating Activities





Net cash
provided by operating activities totaled $7.6 million and $8.6 million for the
three months ended March 31, 2007 and 2008, respectively. The $1.0 million
increase in net cash provided by operating activities primarily reflects a $3.2
million increase in cash collected from customers partially offset by a $2.3
million increase in payments to vendors and employees. The net cash flow
activity related to operations consisted 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 doubtful accounts; and





•
            (gain)
      loss on sale/disposal of assets.





Depreciation
and amortization for the three months ended March 31, 2007 and 2008 was $13.0
million and $14.7 million, respectively. Other non-cash charges for the three
months ended March 31, 2007 and 2008 were $1.2 million and $1.3 million,
respectively.





As of
March 31, 2008, we had $13.5 million in accrued interest payable related to the
interest due on our senior notes, which was subsequently paid on April 1,
2008.





Cash
Flows from Investing Activities





Our net
cash used in investing activities for the three months ended March 31, 2007 and
2008 was $6.8 million and $8.5 million, respectively. Cash flows used in
investing activities for the three months ended March 31, 2007 and 2008
consisted primarily of $8.0 million and $8.5 million in property, plant and
equipment purchases, respectively, discussed below partially offset by $1.1
million proceeds from sales tax refunds during the three months ended March 31,
2007 and $0.1 million proceeds from sale of assets during both the three months
ended March 31, 2007 and 2008.





12
 Index





Cash
Flows from Financing Activities





Our net
cash used in financing activities for the three months ended March 31, 2007 and
2008 was $0.9 million and $1.8 million, respectively. Cash flows from financing
activities for the three months ended March 31, 2007 and 2008 consisted of $1.3
million in payments on long-term debt and capital leases as well as $0.4 million
net borrowings and $0.5 million net repayments, respectively, on zero-balance
bank cash accounts.





Capital
Expenditures





We had
capital expenditures of approximately $8.0 million and $8.5 million, including
capitalized interest, during the three months ended March 31, 2007 and 2008,
respectively. These capital expenditures 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.  The Indenture governing our senior notes 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.





During
the year ending December 31, 2008, 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, 2008, our aggregate contractual obligations
decreased approximately $2.6 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, 2007, primarily as a result of $3.2 million in payments on
equipment financing, capital and operating leases and maintenance and purchase
obligations partially offset by increases in obligations of $0.6 million in new
vehicle and office equipment operating leases and computer capital
leases.





We are
obligated to make payments under a variety of contracts and other commercial
arrangements, including the following:





Long-term Debt and Equipment
Financing. In March 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 mature on April 1, 2011 and 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.  In March 2006 and July 2007, we raised net proceeds of
approximately $30.5 million and $25.8 million, respectively, in a private
placement of an additional $32 million and $25 million, respectively, in
aggregate principal amount of senior notes. These additional senior notes were
issued under the Indenture and are part of the same series of senior notes as
those issued in March 2004.





Our
subsidiary, Grande Communications Networks, Inc., (the “Subsidiary Guarantor”),
has unconditionally guaranteed, jointly and severally, the payment of the
principal, premium and interest (including any additional interest on the senior
notes) on a senior secured basis.





The
senior notes and the Subsidiary Guarantor’s guarantees thereof are secured by a
first priority perfected security interest, subject to certain permitted
encumbrances, in substantially all of our subsidiary’s property and assets,
including substantially all of its property, plant and equipment.





The
senior notes may be redeemed, at our election, as a whole or from time to time
in part at any time upon not less than 10 nor more than 60 days’ notice to each
holder of senior notes to be redeemed, subject to the conditions and at the
redemption prices (expressed as percentages of principal amount) set forth
below, together with accrued and unpaid interest and Liquidating Damages (as
defined in the Indenture), if any, to the applicable redemption
date.





Year
            
            Percentage2008
            
            
            107.00
            %2009
            
            
            103.50
            %2010
      and thereafter
            
            
            100.00
            %





If we
experience specific kinds of change of control events, each holder of senior
notes may require us to repurchase all or any portion of such holder’s senior
notes at a purchase price equal to 101% of the principal amount of the senior
notes, plus accrued and unpaid interest to the date of repurchase.





13
 Index





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 subsidiaries, 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 restricted subsidiaries 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.





During
2007, we completed equipment financing of $4.1 million with a term of 24 months,
which was utilized for the purchase of network equipment.  The
financing is secured by the network equipment purchased with the proceeds of the
borrowing and bears interest at an effective annual rate of approximately 15.3%
with monthly payments equal to 4.2% multiplied by the total amount
borrowed.  This financing is permitted under the Indenture governing
the senior notes.





Capital Leases.We lease
office and facilities space under leasing arrangements. We also have certain
capital leases for customer premise equipment, telecom switching equipment,
software, computers and office equipment.





Operating Leases.We lease
office space, vehicles and other assets for varying periods. Leases that expire
are generally expected to be renewed or replaced by other leases.





Maintenance Agreements.We
have numerous agreements for the maintenance of leased fiber optic
capacity.





Purchase Commitments:During
January 2005, we entered into a minimum purchase agreement with a vendor for the
purchase of fiber optic equipment and installation and maintenance services
through January 2008. During March 2008, we entered into Amendment No. 1 to the
minimum purchase agreement extending the term of the purchase commitment through
December 31, 2008. If we do not make the minimum purchases through the
expiration or termination of this agreement, we will be required to pay a fee of
30% of the remaining unfulfilled amount.





Our plans
with respect to network construction and other capital expenditures are
discussed above under the caption “Capital Expenditures.” We believe those
planned expenditures do not constitute contractual obligations or binding
commitments because, in general, we have the ability to accelerate or postpone
construction of our networks depending upon cash availability, subject to the
need to eventually complete the network in accordance with our single-family
residential development agreements.





We have
also entered into several employment agreements with key executives of the
Company. For a discussion surrounding the terms of these agreements, please
refer to “Executive Compensation” under the caption “Employment Agreements,
Severance Benefits and Change in Control Provisions” included in Grande’s Annual
Report on Form 10-K for the year ended December 31, 2007.





Critical
Accounting Policies and Estimates





Our
consolidated financial statements are prepared in accordance with accounting
principles that are generally accepted in the United States. 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, 2007.





14
 Index





Recent
Accounting Pronouncements





Refer to
“Recent Accounting Pronouncements” included in Management’s Discussion and
Analysis of Financial Condition and Results of Operation in our Annual Report on
Form 10-K for the year ended December 31, 2007.





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, 2008.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that as of March 31, 2008, 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, 2008, 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.





In
designing and evaluating the disclosure controls and procedures and internal
controls over financial reporting, our management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.





15
 Index




PARTII




OTHER
INFORMATION





ITEM 1.
            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.





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, 2007.





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





During
the three months ended March 31, 2008, we issued 76,632 shares of common stock
in connection with the exercise of options with a weighted average exercise
price of $0.05 per share and awarded options to purchase 529,000 shares of
common stock with an exercise price of $0.05 per share. We relied on the
exemption set forth in Section 4(2) of the Securities Act of 1933 in issuing
these securities.





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, 2008.





ITEM5.
            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.





ExhibitNo.
            
            Description3.1
            
            
            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, 2006).4.1
            
            
            Indenture,
      dated as of March 23, 2004, by and among Grande Communications Holdings,
      Inc., the Guarantors named therein and U.S. Bank National Association
      (previously filed as exhibit 4.1 to Form S-1 dated May 18,
      2004).4.2
            
            
            Registration
      Rights Agreement, dated as of March 23, 2004, by and among Grande
      Communications Holdings, Inc., the Guarantors named therein, Bear, Stearns
      & Co. Inc. and Deutsche Bank Securities Inc. (previously filed as
      exhibit 4.2 to Form S-1 dated May 18, 2004).4.3
            
            
            Form
      of 14% Senior Secured Note due 2011 issued in connection with March 2004
      offering (previously filed as exhibit 4.3 to Form S-1 dated May 18,
      2004).





16
 Index




ExhibitNo.
            
            Description4.4
            
            
            Pledge
      and Security Agreement, dated March 23, 2004, by and among Grande
      Communications Holdings, Inc., Grande Communications Networks, Inc.,
      Grande Communications ClearSource, Inc., Grande Communications, Inc.,
      Grande Communications Houston, Inc., Denton Telecom Holdings I, L.L.C.,
      Denton Telecom Investors I, L.L.C, Denton Telecom Partners I, L.P., and
      U.S. Bank National Association (previously filed as exhibit 4.4 to Form
      S-1 dated May 18, 2004).4.5
            
            
            Form
      of 14% Senior Secured Notes due 2011 issued in connection with March 2006
      private placement (previously filed as exhibit 4.5 to Form 10-K dated
      March 31, 2006).4.6
            
            
            Supplemental
      Indenture, dated as of July 18, 2007, by and among Grande Communications
      Holdings, Inc., the Guarantor named therein and U.S. Bank National
      Association (previously filed as exhibit 10.1 to Form 8-K dated July 18,
      2007).10.1*
            
            
            Purchase
      and License Agreement by and between Grande Communications Networks, Inc.
      and Nortel Networks, Inc., dated as of January 24, 2005, as
      amended.10.2*
            
            
            Amendment
      to Purchase and License Agreement by and between Grande Communications
      Networks, Inc. and Nortel Networks, Inc., dated as of January 24,
      2008.31.1*
            
            
            Certification
      pursuant to Section 302 of the Sabanes-Oxley Act of 2002 (18 U.S.C.
      Section 1350).31.2*
            
            
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
      Section 1350).32.1*
            
            
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
      Section 1350).





*
            Filed
      herewith.





17
 Index




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 9, 2008
            By:
            /s/    MICHAEL L.
      WILFLEYMichael
      L. WilfleyChief
      Financial Officer(Duly
      Authorized Officer and Principal Financial
  Officer)






18