**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  
  **FORM
        10-Q**
 
  **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934**
  For
        the
        Quarterly Period Ended September 30, 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
 
 **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  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 November 8,
        2007 was 12,627,265.
  
 
  **GRANDE
        COMMUNICATIONS HOLDINGS, INC. AND
        SUBSIDIARY**
  **Index**
  **Page No.**Part
                  I.
              Financial
                  Information
              3Item 1.
              Financial
                  Statements
              3Condensed
                  Consolidated Balance Sheets
              3Condensed
                  Consolidated Statements of
                  Operations
              4Condensed
                  Consolidated Statements of Cash
                  Flows
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              6Item 2.
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              8Item 3.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              21Item 4.
              Controls
                  and Procedures
              21Part
                  II.
              Other
                  Information
              22Item 1.
              Legal
                  Proceedings
              22Item 1A.
              Risk
                  Factors
              22Item 2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              22Item 3.
              Defaults
                  Upon Senior Securities
              22Item 4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              22Item 5.
              Other
                  Information
              22Item 6.
              Exhibits
              22Signatures
              24
  2
 *Index*
  **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,**
              
              
              **September
                  30,****2006**
              
              
              **2007****(unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents, net of restricted cash of $2,889 and
                  $3,129
              
              $
              43,948
              
              
              $
              58,778Accounts
                  receivable, net of allowance for doubtful accounts of $1,193 and
                  $871
              
              
              17,241
              
              
              
              18,855Prepaid
                  expenses
              
              
              1,823
              
              
              
              2,405Total
                  current assets
              
              
              63,012
              
              
              
              80,038Property,
                  plant and equipment, net of accumulated depreciation of $261,485
                  and
                  $301,286
              
              
              271,939
              
              
              
              256,359Intangible
                  assets, net of accumulated amortization of $753 and $942
              
              
              1,748
              
              
              
              1,604Debt
                  issue costs, net
              
              
              5,115
              
              
              
              4,518Other
                  assets
              
              
              3,227
              
              
              
              3,487Total
                  assets
              
              $
              345,041
              
              
              $
              346,006**Liabilities
                  and stockholders’ equity**Current
                  liabilities:Accounts
                  payable
              
              $
              11,981
              
              
              $
              12,004Accrued
                  liabilities
              
              
              14,556
              
              
              
              15,650Accrued
                  interest payable
              
              
              5,880
              
              
              
              12,470Deferred
                  revenue
              
              
              6,546
              
              
              
              6,855Current
                  portion of long-term debt
              
              
              9
              
              
              
              2,562Current
                  portion of capital lease obligations
              
              
              3,859
              
              
              
              3,628Total
                  current liabilities
              
              
              42,831
              
              
              
              53,169Deferred
                  rent
              
              
              1,268
              
              
              
              1,240Deferred
                  revenue
              
              
              4,551
              
              
              
              4,106Capital
                  lease obligations, net of current portion
              
              
              16,634
              
              
              
              14,350Long
                  term debt, net of current portion
              
              
              160,797
              
              
              
              189,111Total
                  liabilities
              
              
              226,081
              
              
              
              261,976Commitments
                  and contingencies (Note 4)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
              
              
              
              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 $232,618
              
              
              233
              
              
              
              233Series
                  B preferred stock, $0.001 par value per share; 20,833,333 shares
                  authorized, issued and outstanding; liquidation preference of
                  $25,000
              
              
              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
              
              
              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 $149,108
              
              
              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 $19,998
              
              
              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 $15,286
              
              
              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,
                  13,091,140 and 13,117,340 shares issued, 12,591,140 and 12,617,340
                  shares
                  outstanding, at December 31, 2006 and September 30, 2007,
                  respectively
              
              
              13
              
              
              
              13Additional
                  paid-in capital
              
              
              508,736
              
              
              
              509,237Treasury
                  stock, at cost
              
              
              (5
              )
              
              
              (5
              )Accumulated
                  deficit
              
              
              (390,225
              )
              
              
              (425,656
              )Total
                  stockholders’ equity
              
              
              118,960
              
              
              
              84,030Total
                  liabilities and stockholders’ equity
              
              $
              345,041
              
              
              $
              346,006
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  3
 *Index*
  **GRANDE
        COMMUNICATIONS HOLDINGS, INC. AND
        SUBSIDIARY**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
 **(In
        thousands, except per share data)**
  **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,****2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**Operating
                  revenues
              
              $
              47,483
              
              
              $
              49,348
              
              
              $
              142,675
              
              
              $
              147,595Operating
                  expenses:Cost
                  of revenues (excluding depreciation and amortization)
              
              
              16,705
              
              
              
              16,948
              
              
              
              49,704
              
              
              
              50,981Selling,
                  general and administrative
              
              
              24,939
              
              
              
              23,758
              
              
              
              73,538
              
              
              
              69,823Depreciation
                  and amortization
              
              
              13,365
              
              
              
              14,946
              
              
              
              41,439
              
              
              
              41,843Total
                  operating expenses
              
              
              55,009
              
              
              
              55,652
              
              
              
              164,681
              
              
              
              162,647Operating
                  loss
              
              
              (7,526
              )
              
              
              (6,304
              )
              
              
              (22,006
              )
              
              
              (15,052
              )Other
                  income (expense):Interest
                  income
              
              
              532
              
              
              
              539
              
              
              
              1,089
              
              
              
              1,244Interest
                  expense, net of capitalized interest
              
              
              (6,254
              )
              
              
              (7,795
              )
              
              
              (17,655
              )
              
              
              (21,229
              )Net
                  gain on sale of assets
              
              
              49
              
              
              
              204
              
              
              
              2,544
              
              
              
              447Total
                  other income (expense)
              
              
              (5,673
              )
              
              
              (7,052
              )
              
              
              (14,022
              )
              
              
              (19,538
              )Loss
                  before income tax expense
              
              
              (13,199
              )
              
              
              (13,356
              )
              
              
              (36,028
              )
              
              
              (34,590
              )Income
                  tax expense
              
              
              —
              
              
              
              (281
              )
              
              
              —
              
              
              
              (841
              )Net
                  loss
              
              $
              (13,199
              )
              
              $
              (13,637
              )
              
              $
              (36,028
              )
              
              $
              (35,431
              )Basic
                  and diluted net loss per share
              
              $
              (1.05
              )
              
              $
              (1.08
              )
              
              $
              (2.88
              )
              
              $
              (2.81
              )Basic
                  and diluted weighted average number of common shares
                  outstanding
              
              
              12,534
              
              
              
              12,611
              
              
              
              12,512
              
              
              
              12,601
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.
  4
 *Index*
  **GRANDE
        COMMUNICATIONS HOLDINGS, INC. AND
        SUBSIDIARY**
  **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
 **(In
        thousands)**
  **Nine
                  Months Ended****September
                  30,****2006**
              
              
              **2007**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (36,028
              )
              
              $
              (35,431
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
              
              
              41,240
              
              
              
              41,654Amortization
                  of intangible assets
              
              
              199
              
              
              
              189Amortization
                  of deferred financing costs
              
              
              748
              
              
              
              762Provision
                  for bad debts
              
              
              2,566
              
              
              
              2,185Amortization
                  of debt discount/premium
              
              
              801
              
              
              
              938Non-cash
                  compensation expense
              
              
              231
              
              
              
              499Net
                  gain on sale of assets
              
              
              (2,544
              )
              
              
              (447
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (1,495
              )
              
              
              (3,799
              )Prepaid
                  expenses and other assets
              
              
              461
              
              
              
              (842
              )Accounts
                  payable
              
              
              (345
              )
              
              
              690Accrued
                  liabilities and interest payable
              
              
              9,175
              
              
              
              7,684Deferred
                  revenue
              
              
              (185
              )
              
              
              129Deferred
                  rent
              
              
              280
              
              
              
              (28
              )Net
                  cash provided by operating activities
              
              
              15,104
              
              
              
              14,183Cash
                  flows from investing activities:Purchases
                  of property, plant and equipment
              
              
              (23,626
              )
              
              
              (27,174
              )Proceeds
                  from sale of assets
              
              
              9,502
              
              
              
              590Proceeds
                  from sales tax refunds
              
              
              924
              
              
              
              1,130Maturities
                  of short term investments
              
              
              350
              
              
              
              —Other
                  investing activity
              
              
              (47
              )
              
              
              (45
              )Net
                  cash used in investing activities
              
              
              (12,897
              )
              
              
              (25,499
              )Cash
                  flows from financing activities:Net
                  proceeds from borrowings
              
              
              30,581
              
              
              
              30,054Payments
                  of long-term debt and capital lease obligations
              
              
              (2,007
              )
              
              
              (3,076
              )Deferred
                  financing costs
              
              
              (86
              )
              
              
              (165
              )Net
                  borrowings (repayments) on zero-balance cash account
              
              
              147
              
              
              
              (667
              )Other
                  financing activity
              
              
              10
              
              
              
              —Net
                  cash provided by financing activities
              
              
              28,645
              
              
              
              26,146Net
                  change in cash and cash equivalents
              
              
              30,852
              
              
              
              14,830Cash
                  and cash equivalents, beginning of period
              
              
              26,719
              
              
              
              43,948Cash
                  and cash equivalents, end of period
              
              $
              57,571
              
              
              $
              58,778Non-cash
                investing and financing activity:Capital
                lease obligations
              
              $
              6,257
              
              
              $
              437
  The
        accompanying notes are an integral part of these condensed consolidated
        financial statements.




5
 *Index*
  **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 communication carriers.  The Company also provides
        network services by offering telecommunications and data products to medium
        and
        large enterprises and communication 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 September
        30, 2006 and 2007, and for the three and nine months ended September 30,
        2006
        and 2007. Operating results for the three and nine months ended September
        30,
        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 No. 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.
  Based
        on
        our evaluation, we have concluded that there are no significant unrecognized
        tax
        benefits requiring recognition in our financial statements. We also have
        no
        recognized tax benefits that should be derecognized 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 September 30, 2007.  The
        tax years that remain subject to examination by the state of 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.
  Effective
        January 1, 2007, the state of Texas changed its Texas franchise tax, which
        was based
        on
        taxable capital,to a gross margin tax resulting in income tax expense
        for the Company during the three and nine months ended September 30,
        2007.  The 2006 Texas franchise tax expense is included as a component
        of selling, general and administrative expense in the accompanying condensed
        consolidated statements of operations for the three and nine months ended
        September 30, 2006.
  6
 *Index*
  3. Long
        Term
        Debt
  During
        2007, the Company completed new 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 between Grande and U.S. Bank National Association, as
        Indenture Trustee, dated March 23, 2004 (the “Indenture”) governing the 14%
        senior secured notes due 2011 (the “senior notes”).
  ***14%
        Senior Secured Notes***
  On
        July
        18, 2007, the Company completed a private placement offering of an additional
        $25 million in aggregate principal amount of senior notes for gross proceeds
        of
        approximately $26.0 million including a premium on issuance of $1.0
        million.  Debt issuance costs were approximately $0.2
        million.  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 and 2006.  The holders of a majority of the outstanding
        principal balance of the senior notes consented to the amendment of the
        Indenture to allow the Company to complete this issuance and we entered into
        a
        Supplemental Indenture to reflect this amendment on July 18, 2007.
  **4.            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.
  **5.            Subsequent
        Events**
  During
        October 2007, we paid $12.5 million of interest due on our senior
        notes.
 7
 *Index*
  **ITEM2.**
              **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 September 30, 2007, we
        had the ability to market services to 339,678 distinct homes and businesses
        over
        our networks and had 144,889 residential and business customers. Our operating
        revenues were $47.5 million and $49.3 million for the three months ended
        September 30, 2006 and 2007, respectively, and $142.7 million and $147.6
        million
        for the nine months ended September 30, 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 $36.6 million and
        $38.9
        million for the three months ended September 30, 2006 and 2007, respectively,
        and $109.2 million and $115.5 million for the nine months ended September
        30,
        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 family 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 fiber optic network, primarily located in Texas,
        to
        allow us to provide broadband transport services to medium and large enterprises
        and communication carriers. Operating revenues for broadband transport services
        were $2.2 million and $2.4 million for the three months ended September 30,
        2006
        and 2007, respectively, and $6.4 million and $7.2 million for the nine months
        ended September 30, 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 communication carriers in the wholesale market. Operating
        revenues for network services were $8.7 million and $8.0 million for the
        three
        months ended September 30, 2006 and 2007, respectively, and $27.1 million
        and
        $24.9 million for the nine months ended September 30, 2006 and 2007,
        respectively.
  8
 *Index*
  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 predominantly 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 2002 through 2006 as well as for the three and nine months ended September
        30, 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 affected 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 were used to fund our network build-out, operations, and our
        acquisitions. As a result of these equity investments and our stock-for-stock
        merger with ClearSource in 2002, where stock was used as consideration, we
        now
        have over $509 million of total invested equity capital and a base of over
        20
        institutional private equity investors.
  We
        have
        also raised approximately $180.1 million of senior secured debt, including
        premiums and net of discounts and financing costs. During March 2004, we
        raised
        net proceeds of approximately $123.8 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, which was terminated upon repayment.
  In
        March
        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
        14%
        senior secured notes due 2011. These additional notes were issued under the
        Indenture. We used the net proceeds for capital expenditures and working
        capital
        purposes.
  On
        July
        18, 2007, we completed a private placement offering of an additional $25
        million
        in aggregate principal amount of senior notes for gross proceeds of
        approximately $26.0 million including a premium on issuance of $1.0
        million.  Debt issuance costs were approximately $0.2
        million.  We plan to use the net proceeds for capital expenditures and
        working capital purposes. 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 and March 2006.  The holders of a majority of the
        outstanding principal balance of the senior notes consented to the amendment
        of
        the Indenture to allow the Company to complete this issuance and we entered
        into
        a Supplemental Indenture to reflect this amendment on July 18,
        2007.
  During
        2007, we completed new 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.
 
 9
 *Index*
  **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 September 30, 2007, our
        networks passed 339,678 marketable homes and we had 144,889 residential and
        business customers. During the three months ended September 30, 2007, marketable
        homes passed decreased due to terminating certain multiple family dwelling
        unit
        (“MDU”) service arrangements partially offset by new residential and business
        units passed.
  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 telephone 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 September
        30,
        2007, we had 306,070 connections.
 **Regulation
          of Cable Services**
 
 On
          November 13, 2007, the Federal Communications Commission ("FCC") released
          an
          order adopted on October 31, 2007 by the FCC that prohibits cable operators
          from
          entering into new or enforcing existing exclusivity clauses in access
          arrangements with MDUs.  The order is effective 30 days after publication.
          We are currently uncertain of the impact the FCC order will have on our
          results
          of operations and financial condition and the competition we face in providing
          cable television programming to current and future MDUs.
  **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 communication
        carriers as well as providing network services by offering telecommunications
        and data products to medium and large enterprises and communication 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 billing methods,
        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
        services 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 optic 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 vary 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 VoIP terminations, directory assistance, web hosting, database, collocation,
        and technical support.
  10
 *Index*
  **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 retransmission fees
                  for local
                  programming and fees payable to cable franchise authorities, which
                  are
                  usually approximately 5% of our revenues from cable
                  subscriptions.
  •
              *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 security system
                  monitoring
                  by 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. Broadband transport services costs also include
                  non-recurring costs for construction, installation and configuration
                  services, which can vary significantly depending upon the customer’s
                  needs.
  •
              *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.
  11
 *Index*
  ***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 employee compensation and
        departmental costs incurred for network design, monitoring and maintenance.
        They
        also include employee compensation 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, property taxes, insurance and facilities costs.
  ***Depreciation
        and amortization***
  Depreciation
        and amortization expenses include depreciation of our broadband networks
        and
        equipment and other intangible assets.
  **Operating
        Data - Bundled Services**
   **Quarter
                    Ended****September 30,**
                
                
                **December 31,**
                
                
                **March 31,**
                
                
                **June 30,**
                
                
                **September 30,****2006**
                
                
                **2006**
                
                
                **2007**
                
                
                **2007**
                
                
                **2007**Operating
                    Data:Marketable
                    homes passed
                
                
                335,818
                
                
                
                337,025
                
                
                
                338,852
                
                
                
                340,000
                
                
                
                339,678Customers
                
                
                138,542
                
                
                
                137,542
                
                
                
                139,226
                
                
                
                139,558
                
                
                
                144,889Number
                    of connections:Cable
                    television
                
                
                93,709
                
                
                
                93,778
                
                
                
                95,585
                
                
                
                96,582
                
                
                
                98,047Telephone
                
                
                117,071
                
                
                
                116,229
                
                
                
                116,679
                
                
                
                116,204
                
                
                
                114,670Broadband
                    Internet and other
                
                
                83,229
                
                
                
                85,117
                
                
                
                88,526
                
                
                
                90,731
                
                
                
                93,353Total
                    connections
                
                
                294,009
                
                
                
                295,124
                
                
                
                300,790
                
                
                
                303,517
                
                
                
                306,070Average
                    monthly revenue per:Customer
                    – bundled services
                
                $
                88.61
                
                
                $
                89.00
                
                
                $
                91.07
                
                
                $
                92.80
                
                
                $
                91.12Cable
                    television connection
                
                
                52.18
                
                
                
                52.40
                
                
                
                54.56
                
                
                
                55.98
                
                
                
                54.80Telephone
                    connection
                
                
                40.73
                
                
                
                40.18
                
                
                
                40.04
                
                
                
                40.48
                
                
                
                40.88Broadband
                    Internet and other connection
                
                
                32.30
                
                
                
                31.90
                
                
                
                31.95
                
                
                
                31.73
                
                
                
                31.58
  12
 *Index*
  **Results
        of Operations**
  **Three
        Months Ended September 30, 2006 Compared to Three Months Ended September
        30,
        2007**
  The
        following table sets forth financial data as a percentage of operating revenues
        for the three months ended September 30, 2006 and 2007.
  **Three Months Ended****September
                    30,****2006**
                
                
                **2007****Consolidated
                    Financial Data:**Operating
                    revenues:Cable
                    television
                
                
                30
                %
                
                
                32
                %Telephone
                
                
                30
                
                
                
                29Broadband
                    Internet and other
                
                
                17
                
                
                
                18Bundled
                    services
                
                
                77
                %
                
                
                79
                %Broadband
                    transport services
                
                
                5
                
                
                
                5Network
                    services
                
                
                18
                
                
                
                16Total
                    operating revenues
                
                
                100
                
                
                
                100Operating
                    expenses:Cost
                    of revenues
                
                
                35
                
                
                
                34Selling,
                    general and administrative
                
                
                53
                
                
                
                48Depreciation
                    and amortization
                
                
                28
                
                
                
                30Total
                    operating expenses
                
                
                116
                
                
                
                112Operating
                    loss
                
                
                (16
                )
                
                
                (12
                )Other
                    income (expense):Interest
                    income
                
                
                1
                
                
                
                1Interest
                    expense, net of capitalized interest
                
                
                (13
                )
                
                
                (16
                )Total
                    other income (expense)
                
                
                (12
                )
                
                
                (15
                )Loss
                    before income tax expense
                
                
                (28
                )
                
                
                (27
                )Income
                    tax expense
                
                
                —
                
                
                
                (1
                )Net
                    loss
                
                
                (28
                )%
                
                
                (28
                )%
  *Operating
        Revenues.*Our operating revenues for the three months ended September 30,
        2006 and 2007 were $47.5 million and $49.3 million, respectively, an increase
        of
        $1.8 million, or 4%. This increase was driven primarily by a $2.3 million
        and
        $0.2 million increase in bundled services revenues and broadband transport
        services revenues, respectively, partially offset by a $0.7 million decrease
        in
        revenues from network services.
  Operating
        revenues for our bundled services for the three months ended September 30,
        2006
        and 2007 were $36.6 million and $38.9 million, respectively, an increase
        of $2.3
        million, or 6%. Bundled services revenues increased due to growth in the
        number
        of connections, from 294,009 as of September 30, 2006 to 306,070 as of September
        30, 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
        October 1, 2006 through September 30, 2007.
  Operating
        revenues for our cable television services for the three months ended September
        30, 2006 and 2007 were $14.5 million and $16.0 million, respectively, an
        increase of $1.5 million, or 10%. Approximately 68% of the $1.5 million increase
        in cable television services was due to our annual rate increase, which occurred
        during January 2007, as well as increases related to an increase in connections
        and an increased number of customers adding premium services and advanced
        services, such as HD and DVR.
  Operating
        revenues for our telephone services for the three months ended September
        30,
        2006 and 2007 were $14.3 million and $14.2 million, respectively, a decrease
        of
        $0.1 million, or 1%.  Telephone connections decreased 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.
  13
 *Index*
  Operating
        revenues for our broadband Internet and other services for the three months
        ended September 30, 2006 and 2007 were $7.9 million and $8.7 million,
        respectively, an increase of $0.8 million, or 10%, primarily due to a 13%
        increase in average connections related to residential high speed Internet
        service and business Ethernet service partially offset by a 2% decrease in
        average monthly revenue per connection.
  Operating
        revenues for our broadband transport services for the three months ended
        September 30, 2006 and 2007 were $2.2 million and $2.4 million, respectively,
        an
        increase of $0.2 million, or 9%, as a result of an increase in construction
        and
        dark fiber sales as well as moderate customer growth.
  Operating
        revenues for our network services for the three months ended September 30,
        2006
        and 2007 were $8.7 million and $8.0 million, respectively, a decrease of
        $0.7
        million, or 8%.  This decrease consisted of a $0.2 million decrease in
        revenues from data services as the result of a decrease in reciprocal
        compensation revenue due to a regulatory mandated reduction in such compensation
        as well as a decrease in volume from customers.  In addition, there
        was a $0.3 million and $0.2 million decrease in revenues from carrier switched
        services and national directory assistance service, respectively, due to
        decreases in customer volume.
  *Cost
        of Revenues.*Our cost of revenues for the three months ended September 30,
        2006 and 2007 were $16.7 million and $16.9 million, respectively, an increase
        of
        $0.2 million, or 1%; although cost of revenues decreased slightly as a
        percentage of revenues to 34% for the three months ended September 30, 2007
        from
        35% for the three months ended September 30, 2006.  The increase in
        our cost of revenues was primarily due to an increase in cable television
        services costs of approximately $0.9 million partially offset by a $0.7 million
        decrease in network services and broadband transport services
        costs.
  *Selling,
        General and Administrative Expense*. Our selling, general and administrative
        expense for the three months ended September 30, 2006 and 2007 was $24.9
        million
        and $23.8 million, respectively, a decrease of $1.1 million, or 4%. Selling,
        general and administrative expense decreased as a percentage of revenues
        from
        53% to 48%.  Decreases in legal fees, reductions in contract labor
        charges as sales and customer service positions were brought in-house, as
        well
        as decreases in sales and marketing expenses, employee relocation, general
        liability insurance, utilities and other administrative expenses totaled
        approximately $2.3 million, but such decreases were partially offset by
        increases related to compensation primarily related to the new sales and
        customer service positions described above, network repairs and maintenance,
        provision for doubtful accounts, and other miscellaneous expenses that totaled
        approximately $1.2 million.  We expect our selling, general and
        administrative expense to continue to decrease during the fourth quarter
        of 2007
        compared to the fourth 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 September 30, 2006 and 2007 was $13.4 million and $14.9
        million, respectively, a increase of $1.5 million, or 11%. During the three
        months ended September 30, 2006, we received 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 tax associated with those invoices were capitalized
        as
        property and equipment and were partially depreciated, $0.9 million of the
        refund was applied as a reduction of depreciation expense during the three
        months ended September 30, 2006. The increase in depreciation expense was
        also
        related to property, plant and equipment additions during the period of October
        2006 through September 2007, primarily for customer premise equipment, network
        construction and capitalized labor.  These increases were partially
        offset by reductions in depreciation expense related to sales and dispositions
        as well as certain assets that became fully depreciated during the same
        period.
  *Interest
        Expense*. For the three months ended September 30, 2006 and 2007, our
        interest expense, which includes interest incurred net of capitalized interest,
        was $6.3 million and $7.8 million, respectively, an increase of $1.5 million,
        or
        24%. Interest expense increased primarily as a result of the private placement
        of an additional $25.0 million of senior notes in July 2007 as well as a
        decrease in capitalized interest (and a corresponding increase in interest
        expense).  For the three months ended September 30, 2006 and 2007, we
        had capitalized interest of $0.5 million and $0.1 million, respectively,
        a
        decrease of $0.4 million or 80%.
  *Income
        Tax Expense*. For the three months ended September 30, 2007, our income tax
        expense was $0.3 million. Effective January 1, 2007, the state of Texas
        changed its Texas franchise tax, which was based
        on
        taxable capital,to a gross margin tax resulting in income tax expense
        for the Company during the three months ended September 30, 2007.  The
        2006 Texas franchise tax expense is included as a component of selling, general
        and administrative expense in the accompanying condensed consolidated statements
        of operations for the three months ended September 30, 2006.
  14
 *Index*
  **Nine
        Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
        2007**
  The
        following table sets forth financial data as a percentage of operating revenues
        for the nine months ended September 30, 2006 and 2007.
  **Nine Months Ended****September
                    30,****2006**
                
                
                **2007****Consolidated
                    Financial Data:**Operating
                    revenues:Cable
                    television
                
                
                30
                %
                
                
                32
                %Telephone
                
                
                31
                
                
                
                29Broadband
                    Internet
                
                
                16
                
                
                
                17Bundled
                    services
                
                
                77
                %
                
                
                78
                %Broadband
                    transport services
                
                
                4
                
                
                
                5Network
                    services
                
                
                19
                
                
                
                17Total
                    operating revenues
                
                
                100
                
                
                
                100Operating
                    expenses:Cost
                    of revenues
                
                
                35
                
                
                
                35Selling,
                    general and administrative
                
                
                52
                
                
                
                47Depreciation
                    and amortization
                
                
                29
                
                
                
                28Total
                    operating expenses
                
                
                116
                
                
                
                110Operating
                    loss
                
                
                (16
                )
                
                
                (10
                )Other
                    income (expense):Interest
                    income
                
                
                1
                
                
                
                1Interest
                    expense, net of capitalized interest
                
                
                (12
                )
                
                
                (14
                )Other
                    income
                
                
                —
                
                
                
                —Net
                    gain on sale of assets
                
                
                2
                
                
                
                —Total
                    other income (expense)
                
                
                (9
                )
                
                
                (13
                )Loss
                    before income tax expense
                
                
                (25
                )
                
                
                (23
                )Income
                    tax expense
                
                
                —
                
                
                
                (1
                )Net
                    loss
                
                
                (25
                )%
                
                
                (24
                )%
  *Operating
        Revenues.*Our operating revenues for the nine months ended September 30, 2006
        and
        2007 were $142.7 million and $147.6 million, respectively, an increase of
        $4.9
        million, or 3%. This increase was driven primarily by a $6.3 million and
        $0.8
        million increase in bundled services revenues and broadband transport services
        revenues, respectively, partially offset by a $2.2 million decrease in revenues
        from network services.
  Operating
        revenues for our bundled services for the nine months ended September 30,
        2006
        and 2007 were $109.2 million and $115.5 million, respectively, an increase
        of
        $6.3 million, or 6%. Bundled services revenues increased due to growth in
        the
        number of connections, from 294,009 as of September 30, 2006 to 306,070 as
        of
        September 30, 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 October 1, 2006 through September 30, 2007.
  Operating
        revenues for our cable television services for the nine months ended September
        30, 2006 and 2007 were $42.6 million and $47.6 million, respectively, an
        increase of $5.0 million, or 12%. Approximately 58% of the $5.0 million increase
        in cable television services was due to our annual rate increase, which occurred
        during January 2007, as well as increases related to an increase in connections
        and an increased number of customers adding premium services and advanced
        services, such as HD and DVR.
  Operating
        revenues for our telephone services for the nine months ended September 30,
        2006
        and 2007 were $43.5 million and $42.3 million, respectively, a decrease of
        $1.2
        million, or 3%.  Telephone connections decreased 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.
  15
 *Index*
  Operating
        revenues for our broadband Internet and other services for the nine months
        ended
        September 30, 2006 and 2007 were $23.1 million and $25.6 million, respectively,
        an increase of $2.5 million, or 11%, primarily due to a 14% increase in
        connections related to residential high speed service and business Ethernet
        service partially offset by a 3% decrease in average monthly revenue per
        connection.
  Operating
        revenues for our broadband transport services for the nine months ended
        September 30, 2006 and 2007 were $6.4 million and $7.2, respectively, an
        increase of $0.8 million, or 13%, as a result of an increase in construction
        and
        dark fiber sales as well as moderate customer growth.
  Operating
        revenues for our network services for the nine months ended September 30,
        2006
        and 2007 were $27.1 million and $24.9 million, respectively, a decrease of
        $2.2
        million, or 8%.  This decrease consisted of a $1.1 million decrease in
        revenues from data services as the result of a $0.7 million decrease in
        reciprocal compensation revenue partially due to a regulatory mandated reduction
        in such compensation as well as a decrease in volume from
        customers.  In addition, there was a $0.5 million and $0.6 million
        decrease in revenues from carrier switched services and national directory
        assistance service, respectively, due to decreases in customer volume.
  *Cost
        of Revenues.*Our cost of revenues for the nine months ended September 30,
        2006 and 2007 were $49.7 million and $51.0 million, respectively, an increase
        of
        $1.3 million, or 3%; although cost of revenues remained consistent as a
        percentage of revenues at 35% for the nine months ended September 30, 2006
        and
        2007.  The increase in our cost of revenues was primarily due to an
        increase in cable television services costs of approximately $3.2 million
        that
        was partially offset by a $1.8 million decrease in network services and
        broadband transport services costs.
  *Selling,
        General and Administrative Expense*. Our selling, general and administrative
        expense for the nine months ended September 30, 2006 and 2007 was $73.5 million
        and $69.8 million, respectively, a decrease of $3.7 million, or 5%. Selling,
        general and administrative expense decreased as a percentage of revenues
        from
        52% to 47%. Decreases in property tax, a 2006 nonrecurring early termination
        expense related to a property lease, reductions in contract labor charges
        as
        sales and customer service positions were brought in-house, as well as decreases
        in legal fees, provision for doubtful accounts, employee relocation, utilities
        and other administrative expenses totaled approximately $5.6 million, but
        such
        decreases were partially offset by increases related to sales and marketing
        expense as we continued to grow the bundled service business, compensation
        primarily related to the new sales and customer service positions described
        above, stock based compensation, and other miscellaneous expenses that totaled
        approximately $1.9 million. We expect our selling, general and administrative
        expense to continue to decrease during the fourth quarter of 2007 compared
        to
        the fourth 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
        nine months ended September 30, 2006 and 2007 was $41.4 million and $41.8
        million, respectively, an increase of $0.4 million, or 1%. The increase in
        depreciation expense primarily related to property, plant and equipment
        additions during the period of October 2006 through September 2007, primarily
        for customer premise equipment, network construction and capitalized labor.
        During both 2006 and 2007, we received sales tax refunds 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, $0.9 million and $0.7 million of
        the
        refund was applied as a reduction of depreciation expense during 2006 and
        2007,
        respectively. The increases in depreciation expense were partially offset
        by a
        decrease in depreciation expense related to sales and dispositions as well
        as
        certain assets that became fully depreciated during the period from October
        2006
        through September 2007.
  *Interest
        Expense*. For the nine months ended September 30, 2006 and 2007, our
        interest expense, which includes interest incurred net of capitalized interest,
        was $17.7 million and $21.2 million, respectively, an increase of $3.5 million,
        or 20%. Interest expense increased primarily due to the private placement
        of an
        additional $32.0 million of senior notes in March 2006 and $25.0 million
        in July
        2007 as well as a decrease in capitalized interest (and a corresponding increase
        in interest expense). For the nine months ended September 30, 2006 and 2007,
        we
        had capitalized interest of $1.6 million and $0.5 million, respectively,
        a
        decrease of $1.1 million, or 69%.
  *Net
        Gain on Sale of Assets*. For the nine months ended September 30, 2006 and
        2007, our net gain on sale of assets was $2.5 million and $0.4 million,
        respectively, a decrease of $2.1 million. The 2006 net gain was primarily
        due to
        the sale of off-net MDU assets in Dallas.  Net proceeds from the first
        closing, which occurred on March 31, 2006, were $1.9 million, and net proceeds
        from the second closing, which occurred on June 19, 2006, were $0.6
        million.  These assets were non-strategic in nature and were
        originally acquired in our October 2003 acquisition of Advantex. The net
        gain
        recognized during 2007 related primarily to (i) amortization of deferred
        gains
        related to the sale and leaseback of Company land and buildings and customer
        premise equipment of approximately $0.3 million and (ii) the sale or disposal
        of
        certain communications plant, vehicles, network and other
        equipment.
  16
 *Index*
 *Income
        Tax Expense.*For the
        nine months ended September 30, 2007, our income tax expense was $0.8 million.
        Effective January 1, 2007, the state of Texas changed its Texas franchise
        tax, which was based
        on
        taxable capital,to a gross margin tax resulting in income tax expense
        for the Company during the nine months ended September 30, 2007.  The
        2006 Texas franchise tax expense is included as a component of selling, general
        and administrative expense in the accompanying condensed consolidated statements
        of operations for the nine months ended September 30, 2006.
  **EBITDA/Adjusted
        EBITDA**
  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. 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
        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 non-cash stock-based compensation charges, as “Adjusted EBITDA.”
  Because
        a
        significant portion of our cost of revenues and overhead expenses are generally
        fixed in nature, increasing revenues 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 Ended**
                
                
                **Nine
                    Months Ended****September
                    30,**
                
                
                **September
                    30,****2006**
                
                
                **2007**
                
                
                **2006**
                
                
                **2007****(in
                    thousands)**
                
                
                **(in
                    thousands)**Net
                    loss as reported
                
                $
                (13,199
                )
                
                $
                (13,637
                )
                
                $
                (36,028
                )
                
                $
                (35,431
                )Add
                    back non-EBITDA/Adjusted EBITDA items included in net
                    loss:Interest
                    income
                
                
                (532
                )
                
                
                (539
                )
                
                
                (1,089
                )
                
                
                (1,244
                )Interest
                    expense, net of capitalized interest
                
                
                6,254
                
                
                
                7,795
                
                
                
                17,655
                
                
                
                21,229Income
                    tax expense
                
                
                —
                
                
                
                281
                
                
                
                —
                
                
                
                841Franchise
                    tax expense
                
                
                75
                
                
                
                —
                
                
                
                225
                
                
                
                —Depreciation
                    and amortization
                
                
                13,365
                
                
                
                14,946
                
                
                
                41,439
                
                
                
                41,843EBITDA
                
                
                5,963
                
                
                
                8,846
                
                
                
                22,202
                
                
                
                27,238Stock-based
                    compensation expense
                
                
                143
                
                
                
                129
                
                
                
                231
                
                
                
                499Adjusted
                    EBITDA (1)
                
                $
                6,106
                
                
                $
                8,975
                
                
                $
                22,433
                
                
                $
                27,737
 **(1)**Adjusted EBITDA includes a net gain on sale of assets of $0.1 million
        and $0.2 million during the three months ended September 30, 2006 and 2007,
        respectively and $2.5 million and $0.4 million during the nine months ended
        September 30, 2006 and 2007, respectively.
  17
 *Index*
  Adjusted
        EBITDA was $6.1 million and $9.0 million during the three months ended September
        30, 2006 and 2007, respectively, an increase of $2.9 million, or 48%. The
        increase was primarily due to a $1.8 million increase in revenues as well
        as a
        $1.1 million decrease in selling, general and administrative expenses, excluding
        stock-based compensation and franchise tax expense, partially offset by a
        $0.2
        million increase in costs of revenues.
  Adjusted
        EBITDA was $22.4 million and $27.7 million during the nine months ended
        September 30, 2006 and 2007, respectively, an increase of $5.3 million, or
        24%.
        The increase was primarily due to a $4.9 million increase in revenues as
        well as
        a $3.8 million decrease in selling, general and administrative expenses,
        excluding stock-based compensation and franchise tax expense, partially offset
        by a $1.3 million increase in costs of revenues and a $2.1 million decrease
        in
        net gain on sale of assets.
  **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 stock-for-stock merger with ClearSource in 2002, where stock was
        used as
        consideration, we now have over $509 million of total invested equity capital
        and a base of over 20 institutional private equity investors.
  We
        have
        also raised approximately $180.1 million from the sale of our senior notes
        including premiums and net of discounts and financing costs. In March 2004,
        we
        issued $136.0 million principal amount at maturity of senior notes with net
        proceeds of approximately $123.8 million 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 issuance of the senior notes
        in 2004
        to repay all amounts outstanding under our then-existing senior credit facility.
        We used the net proceeds from the sale of the additional senior notes in
        March
        2006 for capital expenditures and working capital purposes.
  On
        July
        18, 2007, we completed a private placement offering of an additional $25
        million
        in aggregate principal amount of senior notes for gross proceeds of
        approximately $26.0 million including a premium on issuance of $1.0
        million.  Debt issuance costs were approximately $0.2
        million.  We plan to use the net proceeds for capital expenditures and
        working capital purposes. 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 and March 2006.  The holders of a majority of the
        outstanding principal balance of the senior notes consented to the amendment
        of
        the Indenture to allow the Company to complete this issuance and we entered
        into
        a Supplemental Indenture to reflect this amendment on July 18,
        2007.
  During
        2007, we completed new 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.
  At
        September 30, 2007, we had total cash and cash equivalents of $58.8 million
        and
        $189.1 million of long-term debt outstanding, net of current portion, and
        net of
        discounts and premiums of $5.3 million. In October 2007, we paid $12.5 million
        of interest due on our senior notes.
  As
        of
        September 30, 2007, we had net working capital of $26.9 million, compared
        to net working capital of $20.2 million as of December 31,
        2006.  The $6.7 million increase in working capital resulted primarily
        from a $17.0 million increase in current assets primarily related to $26
        million
        cash received on the July 2007 issuance of senior notes partially offset
        by the
        April 2007 $11.9 million semi-annual payment of interest on the senior
        notes.  The $17.0 million increase in current assets was partially
        offset by a $10.3 million increase in current liabilities resulting primarily
        from a $6.6 million increase in accrued interest on the senior notes as well
        as
        a $2.6 million increase in the current portion of long-term debt related
        to the
        network equipment purchases financed during 2007.
  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.
  18
 *Index*
 We
        may
        need additional financing to fund our operations or to undertake initiatives
        not
        contemplated by our business plan or to 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 are available to us in the market.
  ***Cash
        Flows from Operating Activities***
  Net
        cash
        provided by operations totaled $15.1 million and $14.2 million for the nine
        months ended September 30, 2006 and 2007, respectively. The net cash flow
        activity related to operations consists primarily of changes in operating
        assets
        and liabilities and adjustments to net loss for non-cash transactions
        including:
  •
              depreciation
                  and amortization expense;
  •
              amortization
                  of deferred financing costs;
  •
              provision
                  for bad debt;
  •
              net
                  gain on sale of assets; and
  •
              non-cash
                  compensation expense.
  Depreciation
        and amortization for the nine months ended September 30, 2006 and 2007 was
        $41.4
        million and $41.8 million, respectively. Net gains on the sale of assets
        for the
        nine months ended September 30, 2006 and 2007 were $2.5 million and $0.4
        million, respectively.  Other non-cash charges for the nine months
        ended September 30, 2006 and 2007 were $4.3 million and $4.4 million,
        respectively.
  As
        of
        September 30, 2007, accrued liabilities included $12.5 million related to
        the
        interest due on our senior notes, which was subsequently paid on October
        1,
        2007.
  ***Cash
        Flows from Investing Activities***
  Our
        net
        cash used in investing activities for the nine months ended September 30,
        2006
        and 2007 was $12.9 million and $25.5 million, respectively. These net cash
        outflows are primarily due to the purchase of customer premise equipment,
        installation costs and other capital assets in both 2006 and 2007. Cash flows
        used in investing activities for the nine months ended September 30, 2006
        and
        2007 consisted primarily of $23.6 million and $27.2 million in property,
        plant
        and equipment purchases, respectively, partially offset by $10.4 million
        and
        $1.7 million in proceeds, primarily related to the 2006 sales of off-net
        MDU
        assets in Dallas, the sales tax refunds received in both 2006 and 2007, and
        other sales of certain property, plant and equipment, respectively.
  ***Cash
        Flows from Financing Activities***
  Our
        net
        cash provided by financing activities for the nine months ended September
        30,
        2006 and 2007 was $28.6 million and $26.1 million, respectively. Cash flows
        from
        financing activities in the nine months ended September 30, 2006 consisted
        primarily of the net proceeds from the private placement of an additional
        $32
        million in aggregate principal amount of senior notes.  Cash flows
        from financing activities for the nine months ended September 30, 2007 consisted
        primarily of $26.0 million received on issuance of senior notes and $4.1
        million
        received in equipment financing partially offset by $3.1 million in payments
        on
        capital leases.
  **Capital
        Expenditures**
  We
        had
        capital expenditures of approximately $23.6 million and $27.2 million, including
        capitalized interest, during the nine months ended September 30, 2006 and
        2007,
        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
        increase of $3.6 million is primarily due to capital equipment purchases
        related
        to our long haul fiber optic network upgrade. 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.
  19
 *Index*
 We
        anticipate spending approximately $36 million, excluding capitalized interest,
        in capital expenditures during the year ended 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**
  The
        following table represents contractual obligations at September 30,
        2007:
  **Payments
                    Due by
                    Period****2007**
                
                
                **2008**
                
                
                **2009**
                
                
                **2010**
                
                
                **2011**
                
                
                **2012
                    &**
                  **Beyond**
                
                
                **Total****(In
                    thousands)**Long-term
                    debt and related interest obligations
                
                $
                14,024
                
                
                $
                29,075
                
                
                $
                29,152
                
                
                $
                27,024
                
                
                $
                206,510
                
                
                $
                —
                
                
                $
                305,785Capital
                    lease obligations
                
                
                1,285
                
                
                
                5,052
                
                
                
                2,542
                
                
                
                1,795
                
                
                
                1,697
                
                
                
                19,801
                
                
                
                32,172Operating
                    lease obligations
                
                
                1,003
                
                
                
                3,926
                
                
                
                3,390
                
                
                
                2,350
                
                
                
                2,006
                
                
                
                10,582
                
                
                
                23,257Maintenance
                    obligations
                
                
                324
                
                
                
                1,053
                
                
                
                1,053
                
                
                
                1,035
                
                
                
                1,035
                
                
                
                9,232
                
                
                
                13,732Purchase
                    obligations
                
                
                —
                
                
                
                2,703
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                2,703Total
                
                $
                16,636
                
                
                $
                41,809
                
                
                $
                36,137
                
                
                $
                32,204
                
                
                $
                211,248
                
                
                $
                39,615
                
                
                $
                377,649
  During
        the nine months ended September 30, 2007, our aggregate contractual obligations
        increased approximately $23 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.  The increase is primarily related to the $25
        million senior notes issued in July 2007 and $14 million of related interest
        payments, new network equipment financing, office space and vehicle operating
        leases.  These increases in our aggregate contractual obligations were
        partially offset by decreases primarily related to payments on capital and
        operating leases and maintenance and purchase obligations as well as the
        semi-annual $11.8 million interest payment on the senior notes.
  *Long-term
        Debt.* In March 2004, we 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. In March
        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
        14%
        senior secured note due 2011. These additional notes were issued under the
        Indenture and are part of the same series of senior notes as those issued
        in
        March 2004.
  On
        July
        18, 2007, we completed a private placement offering of an additional $25
        million
        in aggregate principal amount of senior notes for gross proceeds of
        approximately $26.0 million including a premium on issuance of $1.0
        million.  Debt issuance costs were approximately $0.2
        million.  We plan to use the net proceeds for capital expenditures and
        working capital purposes. 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 and March 2006.  The holders of a majority of the
        outstanding principal balance of the senior notes consented to the amendment
        of
        the Indenture to allow the Company to complete this issuance and we entered
        into
        a Supplemental Indenture to reflect this amendment on July 18,
        2007.
  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.
  20
 *Index*
  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 new 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.
  **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.
  **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 September 30,
        2007.
        Based upon that evaluation, the Chief Executive Officer and Chief Financial
        Officer have concluded that our disclosure controls and procedures were
        effective and designed to ensure that 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 would be made known to them by others within those
        entities.
  During
        the three months ended September 30, 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 financial reporting.
  21
 *Index*
  PART
        II
 **OTHER
        INFORMATION**
  **ITEM1.**
              **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.
 **ITEM1A.**
                **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.
  **ITEM2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
  None.
  **ITEM3.**
              **DEFAULTS
                  UPON SENIOR SECURITIES**
  None.
  **ITEM4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
  In
        July
        of 2007, we submitted a consent solicitation statement to the holders of
        the
        Company’s senior notes.  The consent solicitation requested consent to
        amend the Indenture to permit the issuance of $25,000,000 of additional senior
        notes.  The holders of $86,000,000 in aggregate principal amount of
        the senior notes, which constituted a majority of the outstanding principal
        balance of the senior notes as of the record date, consented to amend the
        Indenture to allow the Company to complete the issuance.  The holders
        of $84,000,000 in aggregate principal amount did not respond to the consent
        solicitation before it terminated.  The Company entered into a
        Supplemental Indenture to reflect this amendment on July 18, 2007.
  **ITEM5.**
              **OTHER
                  INFORMATION**
  None.
  **ITEM6.**
              **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).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
              
              Supplemental
                  Indenture No. 1, dated as of July 18, 2007, by and among Grande
                  Communications Holdings, Inc., the Guarantors named therein and
                  U.S. Bank
                  National Association (previously filed as exhibit 10.1 to Form
                  8-K dated
                  July 23, 2007).
  22
 *Index*
 **Exhibit**
                **No.**
              
              **Description**10.1
              
              Purchase
                  Agreement dated July 6, 2007 by and among Grande Communications
                  Holdings,
                  Inc., Grande Communications Networks, Inc., Goldman Sachs & Co.,
                  Highland Crusader Offshore Partners, L.P. Communications Media
                  Advisors,
                  LLC and Highland Capital Management, L.P. (previously filed as
                  Exhibit
                  10.1 to Form 8-K dated July 11, 2007).31.1*
              
              Certification
                  of the President and Chief Executive Officer pursuant to Section
                  302 of
                  the Sarbanes-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.
 23
 *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:
                  November 14, 2007
              By:
              /s/    Michael
                  L. Wilfley**Michael
                  L. Wilfley****Chief
                  Financial Officer****(Duly
                  Authorized Officer and Principal Financial
                  Officer)**
   24