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, 2008

OR

o 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, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

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

The number of shares of the registrant’s Common Stock outstanding as of October 31, 2008 was 12,784,072.

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

Index

		Page No.
Part I.	Financial Information	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4T.	Controls and Procedures	19
Part II.	Other Information	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	21
Item 6.	Exhibits	21
Signatures		22

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, 2007			September 30, 2008
				(unaudited)
Assets
Current assets:
Cash and cash equivalents, net of restricted cash of $3,129	$	48,138		$	37,531
Accounts receivable, net of allowance for doubtful accounts of $1,138 and $1,289		17,793			16,840
Prepaid expenses and other current assets		1,867			2,597
Total current assets		67,798			56,968
Property, plant and equipment, net of accumulated depreciation of $313,526 and $355,423		249,310			227,936
Intangible assets, net of accumulated amortization of $1,417 and $1,600		1,398			1,215
Debt issue costs, net		4,255			3,466
Restricted cash		3,129			3,129
Deposits and other long-term assets		353			593
Total assets	$	326,243		$	293,307
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,809		$	14,058
Accrued liabilities		15,328			16,022
Accrued interest payable		6,755			13,510
Deferred revenue and customer deposits		6,996			7,829
Current portion of long-term debt		1,612			2,405
Current portion of capital lease obligations		3,548			1,990
Total current liabilities		48,048			55,814
Deferred rent		1,228			1,194
Deferred revenue		4,377			4,226
Capital lease obligations, net of current portion		13,592			12,625
Long term debt, net of current portion		189,994			188,958
Total liabilities		257,239			262,817
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 $134,999,787		35			35
Junior series preferred stock:
Series A preferred stock, $0.001 par value per share; 232,617,839 shares authorized, 232,617,838 shares issued and outstanding; liquidation preference of $232,617,838		233			233
Series B preferred stock, $0.001 par value per share; 20,833,333 shares authorized, issued and outstanding; liquidation preference of $25,000,000		21			21
Series C preferred stock, $0.001 par value per share; 30,000,000 shares authorized, 17,005,191 shares issued and outstanding; liquidation preference of $20,406,229		17			17
Series D preferred stock, $0.001 par value per share; 115,384,615 shares authorized, 114,698,442 shares issued and outstanding; liquidation preference of $149,107,975		115			115
Series E preferred stock, $0.001 par value per share; 8,000,000 shares authorized, 7,999,099 shares issued and outstanding; liquidation preference of $19,997,748		8			8
Series F preferred stock, $0.001 par value per share; 12,307,792 shares authorized, 11,758,278 shares issued and outstanding; liquidation preference of $15,285,761		12			12
Series H preferred stock, $0.001 par value per share; 30,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.001 par value per share; 786,835,883 shares authorized, 13,175,940 and 13,284,072 shares issued, 12,675,940 and 12,784,072 shares outstanding, as of December 31, 2007 and September 30, 2008, respectively		13			13
Additional paid-in capital		509,312			509,617
Treasury stock, at cost		(5	)		(5	)
Accumulated deficit		(440,757	)		(479,576	)
Total stockholders’ equity		69,004			30,490
Total liabilities and stockholders’ equity	$	326,243		$	293,307

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

1

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2008			2007			2008
Operating revenues	$	49,348		$	51,963		$	147,595		$	153,859
Operating expenses:
Cost of revenues (excluding depreciation and amortization)		16,948			17,792			50,981			52,761
Selling, general and administrative		22,847			24,679			67,638			70,486
Provision for doubtful accounts		911			989			2,185			2,409
Depreciation and amortization		14,946			15,683			41,843			44,221
Total operating expenses		55,652			59,143			162,647			169,877
Operating loss		(6,304	)		(7,180	)		(15,052	)		(16,018	)
Other income (expense):
Interest income		539			125			1,244			620
Interest expense, net of capitalized interest		(7,795	)		(7,738	)		(21,229	)		(23,300	)
Net gain on sale of assets		204			209			447			726
Total other income (expense)		(7,052	)		(7,404	)		(19,538	)		(21,954	)
Loss before income tax expense		(13,356	)		(14,584	)		(34,590	)		(37,972	)
Income tax expense		(281	)		(277	)		(841	)		(847	)
Net loss	$	(13,637	)	$	(14,861	)	$	(35,431	)	$	(38,819	)
Basic and diluted net loss per share	$	(1.08	)	$	(1.16	)	$	(2.81	)	$	(3.04	)
Basic and diluted weighted average number of common shares outstanding		12,611			12,782			12,601			12,759

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

2

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Nine Months Ended September 30,
	2007			2008
Cash flows from operating activities:
Net loss	$	(35,431	)	$	(38,819	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		41,654			44,037
Amortization of intangible assets		189			184
Amortization of deferred financing costs		762			789
Amortization of other assets		—			8
Provision for doubtful accounts		2,185			2,409
Amortization of debt discounts/premiums		938			942
Non-cash compensation expense		499			299
Net gain on sale of assets		(447	)		(726	)
Changes in operating assets and liabilities:
Accounts receivable		(3,799	)		(1,378	)
Prepaid expenses and other assets		(842	)		(970	)
Accounts payable		690			1,141
Accrued liabilities and interest payable		7,684			7,449
Deferred revenue		129			1,313
Deferred rent		(28	)		(34	)
Net cash provided by operating activities		14,183			16,644
Cash flows from investing activities:
Purchases of property, plant and equipment		(27,174	)		(23,204	)
Proceeds from sale of assets		590			360
Proceeds from sales tax refunds		1,130			349
Other investing activity		(45	)		—
Net cash used in investing activities		(25,499	)		(22,495	)
Cash flows from financing activities:
Net proceeds from borrowings		30,054			—
Payments of long-term debt and capital lease obligations		(3,076	)		(3,870	)
Net repayments on zero-balance cash account		(667	)		(892	)
Deferred financing costs		(165	)		—
Other financing activity		—			6
Net cash provided by (used in) financing activities		26,146			(4,756	)
Net change in cash and cash equivalents		14,830			(10,607	)
Cash and cash equivalents, beginning of period		43,948			48,138
Cash and cash equivalents, end of period	$	58,778		$	37,531
Non-cash investing and financing activity:
Capital lease obligations	$	437		$	160

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

3

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 a bundled package of cable television (“video”), telephone (“voice”), and broadband Internet (“HSD”) and other services to residential and small and medium-sized business customers in Texas. The Company provides these services in seven markets in the state of Texas using local broadband networks that the Company constructed. In addition, the Company provides broadband transport services to medium and large enterprises and communications carriers.  The Company also provides network services by offering telecommunications and HSD products to medium and large enterprises and communications carriers within wholesale markets.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) that permit reduced disclosure for interim periods. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2008, and for the three and nine months ended September 30, 2007 and 2008. Operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. The December 31, 2007 balance sheet is derived from the audited financial statements for the year ended December 31, 2007. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2007 and notes thereto, together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s Annual Report for the year ended December 31, 2007 on Form 10-K filed with the SEC on March 31, 2008.

The consolidated financial statements include the accounts of Grande Communications Holdings, Inc.’s wholly owned subsidiary.  All inter-company transactions and balances have been eliminated. Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from these estimates.

2. Reclassifications

Certain reclassifications have been made to the condensed consolidated statements of operations for the three and nine months ended September 30, 2007 to conform to the classifications used in the current period. In the condensed consolidated statements of operations, for the three and nine months ended September 30, 2007, provision for doubtful accounts of $0.9 million and $2.2 million, respectively, previously recorded in the line item “selling, general and administrative,” have been reclassified as “provision for doubtful accounts” for such periods.

4

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(UNAUDITED)

3. Accrued Liabilities

Accrued liabilities consist of the following:

	December 31, 2007		September 30, 2008
	(in thousands)
Accrued property taxes	$	4,405	$	3,322
Accrued compensation		2,801		4,153
Accrued taxes—other		2,662		2,582
Accrued programming		2,587		2,976
Accrued other		2,873		2,989
Accrued liabilities	$	15,328	$	16,022

4. Income Taxes

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

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

5. Long Term Debt

14% Senior Secured Notes

Long-term Debt. In March 2004, the Company completed a private placement offering for 136,000 units, each consisting of (1) $1,000 of senior notes due April 1, 2011 (“senior notes”) and (2) a warrant to purchase 100.336 shares of common stock. The senior notes accrue interest at the rate of 14% per annum with the interest payable semi-annually in cash in arrears on April 1 and October 1. The senior notes are governed by the indenture between the Company and U.S. Bank National Association, as Indenture Trustee, dated March 23, 2004 (“Indenture”).

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

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

5

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(UNAUDITED)

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

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

April 1,	Percentage
2008	107.00%
2009	103.50%
2010 and thereafter	100.00%

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

The Indenture contains covenants that, among other things, limit the Company’s ability to:

•      incur additional indebtedness, issue disqualified capital stock (as defined in the Indenture) and, in the case of restricted subsidiaries, issue preferred stock;

•      create liens on assets;

•      pay dividends on, redeem or repurchase 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 restricted subsidiaries to pay dividends or make other payments to the Company; and

•      engage in certain business activities.

In addition, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. This covenant could adversely affect the Company’s ability to make planned capital expenditures.

 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.

6. Contingencies

Legal Proceedings

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

6

GRANDE COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

(UNAUDITED)

Insurance

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

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

7. Subsequent Events

Interest Payment

On October 1, 2008, the Company paid $13.5 million of interest due on the senior notes.  The Company’s cash and cash equivalents on October 1, 2008 subsequent to the interest payment on the senior notes was $21.8 million.

7

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

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend our forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “should,” “intend,” “plan” and similar expressions as they relate to Grande Communications Holdings, Inc. or its subsidiary or our management are intended to identify these forward-looking statements. All of the statements we make regarding our expected future financial position and operating results, our business strategy, our financing plans, forecasted trends relating to the markets in which we operate and similar matters are forward-looking statements. We cannot assure you that our expectations expressed or implied in these forward-looking statements will turn out to be correct. Our actual results could be materially different from our expectations because of various factors, including those discussed below and under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 31, 2008. Any forward-looking statements contained in this quarterly report reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We have no intention, and disclaim any obligation, to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise.

The following management’s discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included herewith and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and Notes thereto for the three-year period ended December 31, 2007, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2008.

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

Overview

Grande’s primary business is providing a bundled package of cable television (“video”), telephone (“voice”), and broadband Internet (“HSD”) and other services to residential and small and medium-sized business customers in Texas.  We provide these services in seven markets in the state of Texas using local broadband networks that we constructed. We refer to the homes and businesses that our network is capable of providing services to as “marketable homes passed.” We believe that an important measure of our growth potential is the number of marketable homes passed by our networks and the marketable homes we are able to pass in the future in the markets in which we currently operate. Marketable homes passed are the number of residential and business units, such as single residential homes, apartment units and condominium units, passed by our networks. Since 2001, we have grown our marketable homes passed through the construction of our networks. The expansion of our networks has, in turn, allowed us to pursue a retail strategy of offering bundled video, voice and HSD services to residential and business customers. As of September 30, 2007 and 2008, we had the ability to market services to 339,678 and 340,048 distinct homes and businesses over our networks, respectively, and had 144,889 and 146,513 residential and business customers, respectively. Our operating revenues were $49.3 million and $51.9 million for the three months ended September 30, 2007 and 2008, respectively, and $147.6 million and $153.9 million for the nine months ended September 30, 2007 and 2008, respectively.

Grande was founded in November 1999 and was funded with $232 million of initial equity capital to pursue a retail strategy of constructing broadband networks in order to offer bundled video, voice, and HSD services to customers. Operating revenues from bundled services were $38.9 million and $42.2 million for the three months ended September 30, 2007 and 2008, respectively, and $115.5 million and $125.3 million for the nine months ended September 30, 2007 and 2008, respectively.  We have continued to grow our bundled services to commercial business customers, which increased 26% to $6.3 million during the three months ended September 30, 2008 from $5.0 million during the three months ended September 30, 2007 and increased 22% to $17.6 million during the nine months ended September 30, 2008 from $14.4 million during the nine months ended September 30, 2007.

8

We have derived an increasing percentage of our revenues from our bundled services and we expect this trend to continue. Because of our local networks and existing fixed infrastructure, we believe we can continue to grow our business within the markets in which we currently operate.

In addition, we have leveraged our retail metro network build-out with the 2003 acquisition of a long haul fiber optic network, primarily located in Texas, to allow us to provide broadband transport services to medium and large enterprises and communications carriers. Operating revenues for broadband transport services were $2.4 million and $3.9 million for the three months ended September 30, 2007 and 2008, respectively, and $7.2 million and $9.3 million for the nine months ended September 30, 2007 and 2008, respectively.

In July 2000, when our network construction was still in a very early stage, we acquired substantially all of the assets of Thrifty Call, which had an established telephone and data network that served as the platform for the provisioning of residential voice and HSD services and is also the platform that provides wholesale network services to medium and large enterprises and communications carriers in the wholesale market. Operating revenues for network services were $8.0 million and $5.8 million for the three months ended September 30, 2007 and 2008, respectively, and $24.9 million and $19.3 million for the nine months ended September 30, 2007 and 2008, respectively.

Our network services are primarily provided using our existing infrastructure and personnel with minimal incremental operating costs and capital expenditures for maintenance. By leveraging our brand, communications infrastructure, voice and data volume, and personnel that predominately support our core retail business and its products, we have gained efficiencies of scale by offering telecommunications and HSD products into wholesale markets.

We have incurred net losses for the past five years and expect to continue to incur net losses in the future. However, we had positive Adjusted EBITDA during the past five years as well as for each of the three and nine months ended September 30, 2007 and 2008. See “Non-GAAP Financial Measures” below for a discussion of this non-GAAP measure of our operating performance as well as our use of Adjusted EBITDA.

Our financial results depend upon many factors that significantly affect our results of operations including, without limitation:

• general economic conditions, including 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,

• our ability to compete effectively depends on our ability to keep pace with advances in technology and maintain high-quality services at prices generally equal to or below those charged by our competitors, and

• increasing programming and other costs.

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

9

Availability of Capital

As described more fully under “Liquidity and Capital Resources” below, we expect that current principal sources of capital going forward will primarily be cash on hand and cash flow from operations. If we do not continue to increase the number of customers and the average prices received for our services, cash flow from operations will be adversely effected and cash on hand will decline.  If our cash position falls below the $20 million required by the covenant set forth in the Indenture, we will be prohibited from making certain capital expenditures.

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, apartment units and condominium units, passed by our networks. As of September 30, 2007 and 2008, our networks passed 339,678 and 340,048 marketable homes, respectively, and we had 144,889 and 146,513 residential and business customers, respectively.

Because we deliver multiple services to our customers, we report our total number of connections for video, voice, HSD and other services in addition to our total number of customers. We count each video, voice, HSD and other service purchase as a separate connection. For example, a single customer who purchases video, voice and HSD service would count as three connections. Similarly, a single customer who purchases our HSD service and our voice service would count as two connections. We do not record the purchase of long distance telephone service by a local telephone customer or digital cable services by an analog cable customer as additional connections. However, we do record each purchase of an additional telephone line by a local telephone customer as an additional connection. As of September 30, 2007 and 2008, we had 306,070 and 317,751 connections, respectively.

Operating Data —Bundled Services

	Quarter Ended
	September 30, 2007		December 31, 2007		March31, 2008		June 30, 2008		September 30, 2008
Operating Data:
Marketable homes passed		339,678		340,058		340,554		340,443		340,048
Customers		144,889		145,675		147,267		146,265		146,513
Number of connections:
Video		98,047		99,453		101,481		100,578		101,673
Voice		114,670		114,303		115,635		115,095		115,078
HSD and other		93,353		95,125		98,367		99,099		101,000
Total connections		306,070		308,881		315,483		314,772		317,751
Average monthly revenue per:
Customer – bundled services	$	91.12	$	90.64	$	93.49	$	95.43	$	96.22
Video connection		54.80		55.78		57.81		58.31		57.45
Voice connection		40.88		40.34		40.60		40.85		41.38
HSD and other connection		31.58		32.27		33.31		34.46		35.11

10

Results of Operations (dollars in millions)

	Three Months Ended September 30,															Nine Months Ended September 30,
	2007			Percent of Operating Revenues			2008			Percent of Operating Revenues			Variance			2007			Percent of Operating Revenues			2008			Percent of Operating Revenues			Variance
Consolidated Financial Data:
Operating revenues:
Video	$	16.0			32	%	$	17.4			33	%	$	1.4		$	47.6			32	%	$	52.5			34	%	$	4.9
Voice		14.2			29			14.3			28			0.1			42.3			29			42.4			27			0.1
HSD and other		8.7			18			10.5			20			1.8			25.6			17			30.4			20			4.8
Bundled services		38.9			79			42.2			81			3.3			115.5			78			125.3			81			9.8
Broadband transport services		2.4			5			3.9			8			1.5			7.2			5			9.3			6			2.1
Network services		8.0			16			5.8			11			(2.2	)		24.9			17			19.3			13			(5.6	)
Total operating revenues		49.3			100			51.9			100			2.6			147.6			100			153.9			100			6.3
Operating expenses:
Cost of revenues		16.9			34			17.8			34			0.9			51.0			35			52.8			34			1.8
Selling, general and administrative		22.9			47			24.7			48			1.8			67.6			46			70.5			46			2.9
Provision for doubtful accounts		0.9			2			0.9			2			—			2.2			1			2.4			1			0.2
Depreciation and amortization		14.9			30			15.7			30			0.8			41.9			28			44.2			29			2.3
Total operating expenses		55.6			113			59.1			114			3.5			162.7			110			169.9			110			7.2
Operating loss		(6.3	)		(13	)		(7.2	)		(14	)		(0.9	)		(15.1	)		(10	)		(16.0	)		(10	)		(0.9	)
Other income (expense):
Interest income		0.5			1			0.1			—			(0.4	)		1.2			1			0.6			0.5			(0.6	)
Interest expense, net of capitalized interest		(7.7	)		(16	)		(7.7	)		(15	)		—			(21.2	)		(14	)		(23.3	)		(15	)		(2.1	)
Net gain on sale of assets		0.2			1			0.2			1			—			0.5			—			0.7			0.5			0.2
Total other income (expense)		(7.0	)		(14	)		(7.4	)		(14	)		(0.4	)		(19.5	)		(13	)		(22.0	)		(14	)		(2.5	)
Loss before income tax expense		(13.3	)		(27	)		(14.6	)		(28	)		(1.3	)		(34.6	)		(23	)		(38.0	)		(24	)		(3.4	)
Income tax expense		(0.3	)		(1	)		(0.3	)		(1	)		—			(0.8	)		(1	)		(0.8	)		(1	)		—
Net loss	$	(13.6	)		(28	)%	$	(14.9	)		(29	)%	$	(1.3	)	$	(35.4	)		(24	)%	$	(38.8	)		(25	)%	$	(3.4	)

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Operating Revenues. Operating revenues increased $2.6 million, or 5%, during the three months ended September 30, 2008 and increased $6.3 million, or 4%, during the nine months ended September 30, 2008. The increase during the three months ended September 30, 2008 was driven primarily by a $3.3 million increase in bundled services revenue and a $1.5 million increase in broadband transport services revenue, partially offset by a $2.2 million decrease in our revenues from network services.

The increase during the nine months ended September 30, 2008 was driven primarily by a $9.8 million increase in bundled services revenue and a $2.1 million increase in broadband transport services revenue, partially offset by a $5.6 million decrease in our revenues from network services.

Operating revenues for our bundled services increased $3.3 million, or 8%, during the three months ended September 30, 2008 and increased $9.8 million, or 8%, during the nine months ended September 30, 2008. The increased revenues from bundled services for both the reporting periods were primarily due to a 4% growth in the number of connections, from 306,070 as of September 30, 2007 to 317,751 as of September 30, 2008, and from the cable rate increases described below.  The additional connections and revenues resulted primarily from the continued increase in penetration of existing marketable homes and businesses and to a lesser extent, sales to new marketable homes built during the period from October 1, 2007 through September 30, 2008.

Operating revenues for our video services increased $1.4 million, or 9%, during the three months ended September 30, 2008 and increased $4.9 million, or 10%, during the nine months ended September 30, 2008. During the three and nine months ended September 30, 2008, approximately 35% of the $1.4 million increase and approximately 29% of the $4.9 million increase, respectively, in video revenues was due to our annual rate increase, which occurred in January 2008, with the remainder due to increased connections and an increased number of customers adding premium services and advanced services, such as HD and DVR. Video services to our commercial business customers increased 50% to $0.3 million during the three months ended September 30, 2008 from $0.2 million during the three months ended September 30, 2007 and increased 50% to $0.9 million during the nine months ended September 30, 2008 from $0.6 million during the nine months ended September 30, 2007.

Operating revenues for our voice services increased $0.1 million during the three months ended September 30, 2008 and increased $0.1 million during the nine months ended September 30, 2008. During the three and nine months ended September 30, 2008, we have experienced a $0.4 million and $1.1 million decrease, respectively, in voice services to residential customers 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.  However, our voice services to commercial business customers increased 14% to $4.0 million during the three months ended September 30, 2008 from $3.5 million during the three months ended September 30, 2007 and increased 12% to $11.5 million during the nine months ended September 30, 2008 from $10.3 million during the nine months ended September 30, 2007.

Operating revenues for our HSD and other services increased $1.8 million, or 21%, during the three months ended September 30, 2008 and increased $4.8 million, or 19%, during the nine months ended September 30, 2008.   During the three and nine months ended September 30, 2008, the increases in HSD and other services were primarily due to a 11% and 9% increase in average monthly revenue per connection, respectively, as customers chose higher speed service offerings.  Operating revenues for our HSD and other services for both reporting periods also increased due to an 8% growth in the number of connections, from 93,353 as of September 30, 2007 to 101,000 as of September 30, 2008.  HSD and other services to our commercial business customers increased 54% to $2.0 million during the three months ended September 30, 2008 from $1.3 million during the three months ended September 30, 2007 and increased 49% to $5.2 million during the nine months ended September 30, 2007 from $3.5 million during the nine months ended September 30, 2007.

Operating revenues for our broadband transport services increased $1.5 million, or 63%, during the three months ended September 30, 2008 and increased $2.1 million, or 29%, during the nine months ended September 30, 2008.  The increased revenues from broadband transport services for both the reporting periods were the result of an increase in construction revenue as well as moderate customer growth.

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Operating revenues for our network services decreased $2.2 million, or 28%, during the three months ended September 30, 2008 and decreased $5.6 million, or 22%, during the nine months ended September 30, 2008.   The decrease during the three and nine months ended September 30, 2008 was primarily related to a $1.7 million and $4.5 million, respectively, decrease in revenue from transmission services to carriers and other telecommunications companies due to a decrease in volume, partially offset by an increase in rates per minute.  Common carrier traffic routed to us for termination is largely dependent on traffic routed to our common carrier customers by their customers. Competitive pricing pressures, business consolidations, and changing consumer preferences for voice services continue to evolve in the markets served by our other common carrier customers. If, as a result, our customers’ traffic is reduced, or if their competitors’ costs to terminate or originate traffic are reduced, our traffic will also likely be reduced.  In addition, during the three and nine months ended September 30, 2008 we’ve also experienced a decrease of $0.4 million and $1.1 million, respectively, in revenue from data services and a decrease of $0.1 million and $0.3 million, respectively, in revenue from national directory assistance service.  Decreases in both data services and national directory assistance are the result of a decrease in customer volume.  The decreases in network services were partially offset by an increase of $0.3 million in managed services during the nine months ended September 30, 2008 due to an increase in customer volume.

Cost of Revenues. Our cost of revenues increased $0.9 million, or 5%, during the three months ended September 30, 2008 and increased $1.8 million, or 4%, during the nine months ended September 30, 2008.  Cost of revenues related to video services increased approximately $1.4 million during the three months ended September 30, 2008 and increased $3.9 million during the nine months ended September 30, 2008. Other costs supporting broadband transport services, voice services, HSD and other services, and certain network services such as access fees and other fees that we pay to other carriers to carry calls outside our networks and HSD transport costs increased $1.0 million during the three months ended September 30, 2008 and increased $2.4 million during the nine months ended September 30, 2008.  These increases in costs of revenues were partially offset by decreases in costs associated with transmission services to carriers and other telecommunications companies and national directory assistance fees, which decreased $1.5 million during the three months ended September 30, 2008 and decreased $4.5 million during the nine months ended September 30, 2008.   The increase in direct costs of video services is primarily due to programming costs increases, which have been increasing on an aggregate basis due to an increase in connections and on a per connection basis due to an increase in costs per channel.  We expect this trend to continue and may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our operations.  The decrease or increase in access and other carrier fees related to costs that are variable usage-based costs that decrease or increase as customer usage varies.

Selling, General and Administrative Expense. Our selling, general and administrative expense increased $1.8 million, or 8%, during the three months ended September 30, 2007 and 2008, respectively, and increased $2.9 million, or 4%, during the nine months ended September 30, 2007 and 2008, respectively. Included in selling, general and administrative expenses during the three and nine months ended September 30, 2008 are non-recurring expenses of $0.7 million and $1.5 million, respectively, incurred in association with the exploration of strategic alternatives to enhance shareholder value.  Other increases in selling, general and administrative expense during the three months ended September 30, 2008 related to sales and marketing, as well as a reduction in the amount of indirect overhead costs capitalized to construction projects, increases in employee commissions related to revenue initiatives, employee health care costs, and other miscellaneous expenses that totaled approximately $2.2 million but such increases were partially offset by decreases in network repairs and maintenance, legal and other professional services, excluding the strategic exploration costs discussed above, and other miscellaneous expenses that totaled approximately $1.1 million. Other increases in selling, general and administrative expense during the nine months ended September 30, 2008 related to increases in employee commissions related to revenue initiatives, employee healthcare costs, software licensing and warranty fees, as well as a reduction in the amount of indirect overhead costs capitalized to construction projects, and other miscellaneous expenses that totaled approximately $3.2 million but such increases were partially offset by decreases in legal and other professional services, excluding the strategic exploration costs discussed above, network repairs and maintenance, sales and marketing, non-cash compensation expense, employee travel, general insurance, property taxes and other miscellaneous expenses that totaled approximately $1.8 million.

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For the year ending December 31, 2008, we expect our selling, general and administrative expense, excluding the strategic exploration costs discussed above, to decrease as a percentage of revenue as compared to the year ended December 31, 2007 as we continue to focus on cost reductions and gain efficiencies.

Depreciation and Amortization Expense. Our depreciation and amortization expense increased $0.8 million, or 5%, during the three months ended September 30, 2008 and increased $2.3 million, or 5%, during the nine months ended September 30, 2008. The increase during the three and nine months ended September 30, 2008 related to property, plant and equipment additions during the period from October 1, 2007 through September 30, 2008, primarily for customer premise equipment, long haul fiber optic network upgrades and capitalized labor expenses.  Partially offsetting the increases related to these additions were decreases in depreciation expense related to sales and dispositions as well as certain assets that became fully depreciated during the period from October 1, 2007 through September 30, 2008.

During the first quarter of 2007 and the second quarter of 2008, we received sales tax refunds as a result of a review of vendor invoices in the years 2004, 2005 and 2006.  Because a portion of the sales taxes associated with those invoices were capitalized as property and equipment and were partially depreciated, $0.7 million and $0.2 million of the refund was applied as a reduction of depreciation expense, during the first quarter of 2007 and the second quarter of 2008, respectively.

Interest Expense. Interest expense, which includes interest incurred net of capitalized interest, remained flat at $7.7 million during both the three months ended September 30, 2007 and 2008 and increased $2.1 million, or 10%, during the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.  Our interest expense increased primarily due to the private placement of an additional $25.0 million of senior notes in the third quarter of 2007.

Non-GAAP Financial Measures

We use EBITDA and Adjusted EBITDA to measure our operating performance on net income (loss), the most directly comparable GAAP financial measure, before interest income, interest expense, income taxes, franchise taxes, depreciation and amortization, referred to as “EBITDA.” Adjusted EBITDA is equal to EBITDA plus non-cash compensation expense. EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. We believe EBITDA and Adjusted EBITDA are often a useful measure of a company’s operating performance and is a significant basis used by our management to measure the operating performance of our business.

Because we have funded the build-out of our networks by raising and expending large amounts of capital, our results of operations reflect significant charges for depreciation, amortization, and interest expense. EBITDA, which excludes this information, provides helpful information about the operating performance of our business, apart from the expenses associated with our physical plant or capital structure. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses. 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 and Adjusted EBITDA do 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.

We believe non-cash stock-based compensation is similar to amortization and interest expense, in that it is more useful to report EBITDA net of this amount to better measure operating performance in comparison to prior periods. However, because of the nature of these charges, we refer to EBITDA, net of non-cash stock-based compensation charges as “Adjusted EBITDA.”

Adjusted EBITDA decreased $0.2 million, or 2%, during the three months ended September 30, 2008 and increased $1.5 million, or 5%, during the nine months ended September 30, 2008.  The decrease in Adjusted EBITDA during the three months ended September 30, 2008 was primarily due to $0.7 million of non-recurring expenses incurred in association with the exploration of strategic alternatives to enhance shareholder value, a $1.2 million increase in selling, general and administrative expenses, excluding stock-based compensation and strategic exploration costs, as well as a $0.9 million increase in costs of revenue, partially offset by a $2.6 million increase in operating revenues. The increase in Adjusted EBITDA during the nine months ended September 30, 2008 was primarily due to a $6.3 million increase in operating revenues as well as a $0.2 million increase in net gain on sale of assets, partially offset by $1.5 million of non-recurring expenses incurred in association with the exploration of strategic alternatives to enhance shareholder value, a $1.7 million increase in selling, general and administrative expenses, excluding stock-based compensation and strategic exploration costs, and a $1.8 million increase in costs of revenues.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2008			2007			2008
	(in thousands)						(in thousands)
Net loss as reported	$	(13,637	)	$	(14,861	)	$	(35,431	)	$	(38,819	)
Add back non-EBITDA/Adjusted EBITDA items included in net loss:
Interest income		(539	)		(125	)		(1,244	)		(620	)
Interest expense, net of capitalized interest		7,795			7,738			21,229			23,300
Income tax expense		281			277			841			847
Depreciation and amortization		14,946			15,683			41,843			44,221
EBITDA (1)		8,846			8,712			27,238			28,929
Non-cash compensation expense		129			92			499			299
Adjusted EBITDA (1)	$	8,975		$	8,804		$	27,737		$	29,228

(1)EBITDA andAdjusted EBITDA includes a net gain on sale of assets of $0.2 million during both the three months ended September 30, 2007 and 2008 and $0.5 million and $0.7 million during the nine months ended September 30, 2007 and 2008, respectively.  Also included are non-recurring expenses of $0.7 million and $1.5 million during the three and nine months ended September 30, 2008, respectively, incurred in association with the exploration of strategic alternatives to enhance shareholder value.

Liquidity and Capital Resources

Sources and Uses of Funds

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

As of September 30, 2008, we had total cash and cash equivalents of $37.5 million and $206 million of long-term debt and capital lease obligations outstanding, including the current portion, and net of discounts and premiums of $4.0 million.  In October 2008, we paid $13.5 million of interest due on our senior notes.

As of September 30, 2008, we had net working capital of $1.2 million, compared to net working capital of $19.8 million as of December 31, 2007.  The $18.6 million decrease in working capital resulted primarily from a $10.8 million decrease in current assets primarily due to the $13.5 million interest payment in April 2008 on our senior notes as well as a $7.8 million net increase in current liabilities, including the $6.8 million increase in accrued interest payable.

Provided that we meet our cash flow projections in our current business plan and current economic market conditions do not continue to deteriorate as described under Part II, Item 1A. “Risk Factors” below, we expect that our available cash and cash equivalents and cash generated from operations will be sufficient to fund our existing operations, planned capital spending and other commitments over the next twelve months through September 30, 2009. We believe that we will not require additional financing and that we will manage our cash position above $20 million in accordance with the covenant set forth in the Indenture over the next twelve months through September 30, 2009. As described under “Contractual Obligations and Commercial Commitments” below, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. If our cash and cash equivalents fall below $20 million, we would not be permitted to make certain capital expenditures until such time as our cash and cash equivalents, including such proposed certain capital expenditures, increase above $20 million.  If we made certain capital expenditures that would cause our cash and cash equivalents to fall below $20 million, we would be required to notify the Trustee of such default.  If we receive notification from the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding senior notes, we would have 60 days to comply with the covenant.   If after 60 days, we have not complied with the covenant, the senior notes may be declared due and payable immediately by notice from the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding senior notes. This covenant could adversely affect our ability to make planned capital expenditures.

15

Our current business plan is based on our estimates regarding expected future costs and expected revenues. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to consider asset sales or seek additional financing to fund our operations, to undertake initiatives not contemplated by our business plan or obtain additional cushion against possible shortfalls. Future financings may include a range of different sizes or types of financing, including capital lease transactions and the sale of additional debt or equity securities. These financings could increase our level of indebtedness or result in dilution to our equity holders. Additionally, we can call our existing senior notes at any time giving us the near term ability to refinance our bonds in the event better pricing and terms were available to us in the market. 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 and the state of the credit markets; 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.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $14.2 million and $16.6 million for the nine months ended September 30, 2007 and 2008, respectively. The $2.4 million increase in net cash provided by operating activities primarily reflects a $9.4 million increase in cash collected from customers as well as a $0.5 million increase in proceeds from sales tax refunds attributed to operating activities.  These increases in net cash provided by operating activities were partially offset by a $3.8 million increase in payments to vendors and employees, a $1.9 million increase in interest expense paid, a $1.1 million increase in income taxes paid, as well as a $0.7 million decrease in interest income received. The net cash flow activity related to operations consisted primarily of our operating results adjusted by changes in operating assets and liabilities and non-cash transactions including:

• depreciation, amortization and accretion expense;

• non-cash compensation expense;

• non-cash interest expense;

• provision for doubtful accounts; and

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

Cash Flows from Investing Activities

Our net cash used in investing activities for the nine months ended September 30, 2007 and 2008 was $25.5 million and $22.5 million, respectively, and consisted primarily of $27.2 million and $23.2 million in property, plant and equipment purchases, respectively, discussed below, partially offset by $1.1 million and $0.3 million of proceeds, respectively, from sales tax refunds applicable to capital assets and $0.6 million and $0.3 million of proceeds from sale of assets, respectively.

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Cash Flows from Financing Activities

Our cash flows from financing activities for the nine months ended September 30, 2007 and 2008 was $26.1 million cash provided by financing activities and $4.8 million cash used in financing activities, respectively.  Cash provided by financing activities consisted of $30.1 million proceeds from borrowings during the nine months ended September 30, 2007.  Cash used in financing activities for the nine months ended September 30, 2007 and 2008 consisted of  $3.1 million and $3.9 million in payments on long-term debt and capital leases, respectively, as well as $0.7 million and $0.9 million net repayments, respectively, on zero-balance bank cash accounts.

Capital Expenditures

We had capital expenditures of approximately $27.2 million and $23.2 million, including capitalized interest, during the nine months ended September 30, 2007 and 2008, respectively. These capital expenditures relate to: network construction; initial installation costs; the purchase of customer premise equipment, such as cable set-top boxes and cable modems; corporate and network equipment, such as switching and transport equipment; and billing and information systems.  As described under “Liquidity and Capital Resources—Sources and Uses of Funds”, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. We anticipate spending approximately $31 million, excluding capitalized interest, in capital expenditures during the year ending December 31, 2008.

Contractual Obligations and Commercial Commitments

During the nine months ended September 30, 2008, our aggregate contractual obligations decreased approximately $20.9 million compared to those previously described in Part II, Item 7 included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2007, primarily as a result of $13.5 million interest payment on the senior notes and $8.9 million in payments on equipment financing, capital and operating leases and maintenance and purchase obligations.  These payments are partially offset by increases in obligations of $1.5 million primarily related to new vehicle operating leases, office equipment operating leases and computer capital leases.

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

Long-term Debt and Equipment Financing. In March 2004, the Company completed a private placement offering for 136,000 units, with each unit consisting of (1) $1,000 of senior notes and (2) a warrant to purchase 100.336 shares of common stock. The senior notes mature on April 1, 2011 and accrue interest at the rate of 14% per annum with the interest payable semi-annually in cash in arrears on April 1 and October 1.  In March 2006 and July 2007, we raised net proceeds of approximately $30.5 million and $25.8 million, respectively, in a private placement of an additional $32 million and $25 million, respectively, in aggregate principal amount of senior notes. These additional senior notes were issued under the Indenture and are part of the same series of senior notes as those issued in March 2004.

Our subsidiary, Grande Communications Networks, Inc. (the “Subsidiary Guarantor”), has unconditionally guaranteed, jointly and severally, the payment of the principal, premium and interest (including any additional interest on the senior notes) on a senior secured basis. The senior notes and the Subsidiary Guarantor’s guarantees thereof are secured by a first priority perfected security interest, subject to certain permitted encumbrances, in substantially all of our subsidiary’s property and assets, including substantially all of its property, plant and equipment.

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

17

April 1,	Percentage
2008	107.00%
2009	103.50%
2010 and thereafter	100.00%

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

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

• incur additional indebtedness, issue disqualified capital stock (as defined in the Indenture) and, in the case of our restricted subsidiaries, issue preferred stock;

• create liens on our assets;

• pay dividends on, redeem or repurchase our capital stock or make other restricted payments;

• make investments in other companies;

• enter into transactions with affiliates;

• enter into sale and leaseback transactions;

• sell or make dispositions of assets;

• place restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; and

• engage in certain business activities.

In addition, the Indenture contains a covenant restricting certain capital expenditures if such expenditures would result in us having less than $20 million in cash and cash equivalents after giving effect to such expenditures. This covenant could adversely affect our ability to make planned capital expenditures.

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

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

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

Operating Leases. We lease office space, vehicles and other assets for varying periods. Leases that expire are evaluated for renewal based on operational necessity.

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

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

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

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

Critical Accounting Policies and Estimates

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

There have been no material changes to the critical accounting policies and estimates previously described in Part II, Item 7 included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2007.

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4T. 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, 2008. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2008, our disclosure controls and procedures are effective in timely alerting them to material information relating to Grande required to be included in this report and the other reports that we file or submit under the Securities Exchange Act of 1934.

During the three months ended September 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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

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PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Except for the risk factor set forth below, there have been no material changes to the risk factors previously described in Part I, Item 1A included in Grande’s Annual Report on Form 10-K for the year ended December 31, 2007.

The current turmoil in the credit markets and poor economic conditions could negatively impact our business by squeezing demand for our products and the availability of capital and increasing our cost of credit.

The current turmoil in the credit markets could limit demand for our products, and affect the overall availability and cost of credit. Our operations are affected by local and national economic conditions, which have recently deteriorated significantly and may remain depressed for the foreseeable future. The consequences of a prolonged recession may include a lower level of economic activity and changes in demand for the services we provide in our markets, which may adversely affect our revenues, liquidity and future growth.  Current economic conditions may be exacerbated by insufficient financial sector liquidity leading to potential increased unemployment, which may impact our customers’ ability to pay timely, increase customer bankruptcies, and may lead to increased bad debt.   It is expected that commercial and wholesale customers will be impacted first with residential customers following, if such circumstances occur. Customer collections are our primary source of cash.  While we believe we have a diversified customer base and no concentration of credit risk with any single customer, if the current market conditions continue to deteriorate we may experience increased churn in our customer base, which could also have a material adverse effect on our liquidity.

Instability in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital, which are discussed in greater detail in the Risks Relating to Our Business risk section in our Annual Report on Form 10-K for the year ended December 31, 2007. At this time, it is unclear whether and to what extent the actions taken by the U.S. government, including, without limitation, the passage of the Emergency Economic Stabilization Act of 2008 and other measures currently being implemented or contemplated, will mitigate the effects of the crisis.  While we have no immediate need to access the credit markets, the impact of the current crisis on our ability to obtain financing in the future, and the cost and terms of same, is unclear. No assurances can be given that the effects of the current crisis will not have a material adverse effect on our business, financial condition and results of operations.

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

During the three months ended September 30, 2008, we issued 12,000 shares of common stock in connection with the exercise of options with a weighted average exercise price of $0.05 per share and awarded options to purchase 249,000 shares of common stock with an exercise price of $0.05 per share. We relied on the exemption set forth in Section 4(2) of the Securities Act of 1933 in issuing these securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

There were no matters submitted to a vote of security holders of Grande during the three months ended September 30, 2008.

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ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Grande Communications Holdings, Inc. (previously filed as exhibit 3.1 to Form 10-K dated March 31, 2006).
3.2	Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.2 to Form S-1 dated May 18, 2004).
3.3	Amendment No. 1 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.3 to Form 10-Q dated November 5, 2004).
3.4	Amendment No. 2 to Bylaws of Grande Communications Holdings, Inc. (previously filed as exhibit 3.4 to Form 10-K dated March 30, 2006).
4.1	Indenture, dated as of March 23, 2004, by and among Grande Communications Holdings, Inc., the Guarantors named therein and U.S. Bank National Association (previously filed as exhibit 4.1 to Form S-1 dated May 18, 2004).
4.2	Registration Rights Agreement, dated as of March 23, 2004, by and among Grande Communications Holdings, Inc., the Guarantors named therein, Bear, Stearns & Co. Inc. and Deutsche Bank Securities Inc. (previously filed as exhibit 4.2 to Form S-1 dated May 18, 2004).
4.3	Form of 14% Senior Secured Note due 2011 issued in connection with March 2004 offering (previously filed as exhibit 4.3 to Form S-1 dated May 18, 2004).
4.4	Pledge and Security Agreement, dated March 23, 2004, by and among Grande Communications Holdings, Inc., Grande Communications Networks, Inc., Grande Communications ClearSource, Inc., Grande Communications, Inc., Grande Communications Houston, Inc., Denton Telecom Holdings I, L.L.C., Denton Telecom Investors I, L.L.C, Denton Telecom Partners I, L.P., and U.S. Bank National Association (previously filed as exhibit 4.4 to Form S-1 dated May 18, 2004).
4.5	Form of 14% Senior Secured Notes due 2011 issued in connection with March 2006 private placement (previously filed as exhibit 4.5 to Form 10-K dated March 31, 2006).
4.6	Supplemental Indenture, dated as of July 18, 2007, by and among Grande Communications Holdings, Inc., the Guarantor named therein and U.S. Bank National Association (previously filed as exhibit 10.1 to Form 8-K dated July 18, 2007).
10.1*	Separation Agreement and Full and Final Release of Claims between Grande Communications Networks, Inc. and Jeffrey A. Brennan dated August 15, 2008.
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1*	Certification pursuant to Rule 13a – 14(b) promulgated under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

* Filed herewith.

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SIGNATURES

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

	Grande Communications Holdings, Inc.
	(Registrant)
Date: November 10, 2008	By:	/s/    MICHAEL L. WILFLEY
		Michael L. Wilfley
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer)

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