Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the quarterly period ending September 30, 2008

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

For the transition period from______________ to______________

Commission File Number: 000-51418

Equity Media Holdings Corporation

(Exact name of registrant as specified in its charter)

Delaware		20-2763411
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Shackleford Drive, Suite 400

Little Rock, Arkansas 72211

(Address of principal executive offices, including zip code)

(501) 219-2400

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the Exchange Act. (Check one):

o Large accelerated filer o Accelerated filer o Non-accelerated filer þ 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 o Noþ

As of November 19, 2008, 40,278,642 shares of the Company’s common stock, $0.0001 par value per share, were outstanding.

Table of Contents

EQUITY MEDIA HOLDINGS CORPORATION

INDEX

		Page
PART I – FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets — As of September 30, 2008 (unaudited) and as of December 31, 2007		3

Condensed Consolidated Statements of Operations — For the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)		5

Condensed Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2008 and 2007 (unaudited)		6

Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		27

Item 4. Controls and Procedures		27

PART II – OTHER INFORMATION		28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		28

Item 3. Defaults Upon Senior Securities		28

Item 6. Exhibits		28

Signatures		29

Exhibit Index		30

EX-31.1 Section 302 Certification of CEO

EX-31.2 Section 302 Certification of CFO

EX-32.1 Section 906 Certification of CEO

EX-32.2 Section 906 Certification of CFO

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EQUITY MEDIA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2008			December 31, 2007
ASSETS		*(Unaudited)*
Current assets
Cash and cash equivalents	$	762,134		$	634,314
Restricted cash		811			4,162,567
Certificate of deposit		—			112,107
Trade accounts receivable, net of allowance for uncollectible accounts		3,820,403			3,514,635
Program broadcast rights		7,597,011			6,921,465
Assets held for sale		—			9,520,849
Other current assets		794,670			321,434
Prepaid expenses - related party		—			100,000
Total current assets		12,975,029			25,287,371

Property and equipment
Land and improvements		2,026,698			2,017,698
Buildings		3,995,744			3,956,229
Broadcast equipment		29,802,288			29,174,079
Transportation equipment		301,857			283,151
Furniture and fixtures		4,550,516			4,422,527
Construction in progress		102,889			163,716
		40,779,992			40,017,400
Accumulated depreciation		(19,811,267	)		(16,350,882	)
Net property and equipment		20,968,725			23,666,518

Intangible assets
Indefinite-lived assets, net
Broadcast licenses		57,878,759			66,498,347
Goodwill		1,740,282			1,940,282
Total indefinite-lived assets, net		59,619,041			68,438,629

Other assets
Broadcasting construction permits		399,302			885,665
Program broadcast rights		8,458,643			4,001,625
Investment in joint ventures		435,085			435,860
Deposits and other assets		107,588			98,705
Broadcasting station acquisition rights pursuant to assignment agreements		156,000			440,000
Total other assets		9,556,618			5,861,855

Total assets	$	103,119,413		$	123,254,373

Table of Contents


	September 30, 2008			December 31, 2007
		*(Unaudited)*
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities
Trade accounts payable	$	6,404,935		$	3,644,475
Due to affiliates and related parties		10,257,912			2,509,480
Lines of credit		991,771			994,495
Accrued expenses and other liabilities		2,697,198			1,777,240
Deposits held for sales of broadcast licenses		1,024,601			1,024,601
Deferred revenue		239,416			271,728
Current portion of program broadcast rights obligations		3,949,479			2,094,741
Current portion of deferred barter revenue		3,774,929			4,393,637
Note payable to Univision		15,000,000			15,000,000
Amounts due to Luken Communications, LLC		25,000,000			—
Current portion of notes payable		42,744,322			52,233,322
Current portion of capital lease obligations		44,959			44,546
Total current liabilities		112,129,522			83,988,265

Non-current liabilities
Notes payable, net of current portion		7,966,422			8,996,705
Capital lease obligations, net of current portion		110,166			141,491
Program broadcast rights obligations, net of current portion		5,610,522			1,140,641
Deferred barter revenue, net of current portion		1,996,076			2,618,143
Due to affiliates and related parties		896,009			6,262
Security and other deposits		213,500			213,500
Other liabilities		1,135,540			556,795
Total non-current liabilities		17,928,235			13,673,537

Commitments and Contingencies		—			—

Mandatorily redeemable preferred stock — $.0001 par value; 25,000,000 shares authorized; 2,050,519 issued and outstanding		10,519,162			10,519,162

STOCKHOLDERS’ (DEFICIT) EQUITY
Common stock — $.0001 par value; 100,000,000 shares authorized; 40,278,642 issued and outstanding at September 30, 2008 and December 31, 2007		4,028			4,028
Additional paid-in-capital		137,357,300			136,217,425
Accumulated deficit		(174,817,482	)		(121,146,692	)
		(37,456,154	)		15,074,761
Treasury stock, at cost		(1,352	)		(1,352	)
Total stockholders’ (deficit) equity		(37,457,506	)		15,073,409

Total liabilities and stockholders’ (deficit) equity	$	103,119,413		$	123,254,373

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

EQUITY MEDIA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months ended September 30,						Nine Months ended September 30,
	2008			2007			2008			2007
Broadcast Revenue	$	7,092,517		$	7,508,138		$	22,856,190		$	21,296,813

Operating Expenses
Program, production & promotion		4,377,143			3,696,863			14,613,526			10,727,108
Selling, general & administrative		5,784,397			7,271,801			21,571,141			21,476,927
Selling, general & administrative – related party		163,380			199,796			1,913,647			802,529
Impairment charge on broadcasting assets		18,263,563			—			18,263,563			—
Management agreement settlement		—			—			—			8,000,000
Depreciation & amortization		1,041,719			1,004,958			3,123,125			2,852,317
Management fees – related party		375,000			375,000			750,000			1,172,581
Rent		657,496			604,316			2,029,606			1,836,611

Total operating expenses		30,662,698			13,152,734			62,264,608			46,868,073

Loss from operations		(23,570,181	)		(5,644,596	)		(39,408,418	)		(25,571,260	)

Other income (expense)
Interest income		7,369			85,421			33,245			117,931
Interest expense		(1,929,770	)		(1,819,741	)		(7,947,776	)		(5,789,080	)
Interest expense – related party		(4,964,157	)		(262,500	)		(5,795,157	)		(525,000	)
(Loss) gain on disposal and/or sale of assets		(282,882	)		—			(482,882	)		453,753
Other income, net		607,159			212,324			717,111			482,175
Losses from affiliates and joint ventures		(166	)		(226,660	)		(775	)		(279,349	)

Total other (expense), net		(6,562,447	)		(2,011,156	)		(13,476,234	)		(5,539,570	)

Loss before provision for income taxes		(30,132,628	)		(7,655,752	)		(52,884,652	)		(31,110,830	)
Provision (benefit) for income taxes		—			—			—			—

Net loss		(30,132,628	)		(7,655,752	)		(52,884,652	)		(31,110,830	)
Preferred dividend		(198,661	)		(185,598	)		(786,138	)		(12,506,140	)

Net loss attributable to common shareholders	$	(30,331,289	)	$	(7,841,350	)	$	(53,670,790	)	$	(43,616,970	)

Weighted average number of common shares outstanding:
Basic and diluted		40,278,382			40,646,137			40,278,382			35,104,786

Net loss attributable to common shareholders per share:
Basic and diluted	$	(0.75	)	$	(0.19	)	$	(1.33	)	$	(1.24	)

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

EQUITY MEDIA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30, 2008			September 30, 2007
Cash flows from operating activities:
Net loss	$	(52,884,652	)	$	(31,110,830	)
Adjustments to reconcile net loss to net cash used by operating activities:
Provision for bad debt		295,230			1,030,315
Impairment charge on broadcasting assets		18,263,563			—
Depreciation		3,123,126			2,811,832
Amortization of intangibles		—			40,485
Amortization of program broadcast rights		8,787,472			5,451,169
Amortization of discounts on interest-free debt		—			29,723
Equity in losses of subsidiaries and joint ventures		775			279,349
Loss (gain) on disposal and/or sale of assets		(1,118	)		(453,753	)
(Gain) loss on sale of intangibles		484,000			—
Management agreement settlement		—			4,800,000
Share-based compensation		784,415			1,658,678
Changes in operating assets and liabilities:
Trade accounts receivable		(624,844	)		(852,699	)
Deposits and other assets		(234,054	)		(526,225	)
Restricted cash		4,161,757			—
Accounts payable and accrued expenses		4,818,857			(75,397	)
Program broadcast rights		(13,920,116	)		(8,580,136	)
Program broadcast obligations		6,324,614			1,285,043
Deferred barter revenue		(1,240,705	)		1,525,259
Security deposits		—			(5,523	)
Deferred income		(32,312	)		(13,657	)
Net cash used by operating activities		(21,893,992	)		(22,706,367	)

Cash flows from investing activities:
Purchases of property and equipment		(38,657	)		(6,398,509	)
Proceeds from sale of property and equipment		11,635			621,462
Acquisition of broadcast assets		—			(1,625,000	)
Restriction of cash for acquisitions		—			(5,684,739	)
Proceeds (purchase) of certificate of deposit		112,107			(2,482	)
Net advances from (to) related parties and affiliates		7,489,644			517,585
Net cash provided by (used) in investing activities		7,574,729			(12,571,683	)
Cash flows from financing activities:
Proceeds from notes payable		58,982,502			19,084,389
Payments of notes payable		(69,504,508	)		(19,530,275	)
Payments of capital lease obligations		(30,911	)		(27,264	)
Proceeds from Luken transactions		25,000,000			—
Recapitalization through merger		—			52,906,853
Purchase of preferred stock		—			(25,000,000	)
Issuance of common stock in private placement		—			9,000,000
Settlement with dissenting shareholders		—			(368,410	)
Purchase of common stock		—			(1,352	)
Net cash provided by financing activities		14,447,083			36,063,941
Net increase in cash and cash equivalents		127,820			785,891

Cash and cash equivalents — beginning of period		634,314			1,630,973

Cash and cash equivalents — end of period	$	762,134		$	2,416,864
Supplemental cash flow information:
Cash paid during the period for interest	$	8,260,144		$	5,196,589
Supplemental non-cash activities:
Issuance of note payable to redeem preferred stock	$	—		$	15,000,000
Distribution to converting shareholders	$	—		$	10,899,882
Issuance of mandatory redeemable preferred stock to pay accrued preferred dividends	$	—		$	10,519,162
Assumption of net liabilities of Coconut Palm Acquisition Corporation	$	—		$	(2,267,340	)
Issuance of common stock to pay preferred dividends	$	—		$	1,615,781
Charge to stockholders’ equity for prepaid merger costs	$	—		$	953,223
Issuance of common stock to retire debt	$	—		$	500,000
Acquisition of real property through assumption of debt	$	—		$	205,347
Accretion of preferred dividends	$	578,743		$	371,197
Preferred dividend attributable to beneficial conversion	$	207,395		$	—

See Notes to Unaudited Condensed Consolidated Financial Statements.

Table of Contents

EQUITY MEDIA HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of Equity Media Holdings Corporation and its consolidated subsidiaries (the “Company”) and its subsidiaries. All significant inter-company balances and transactions have been eliminated. The accounting policies followed by the Company and other pertinent information are set forth in the notes to the Company’s financial statements for the fiscal year ended December 31, 2007 included in the Form 10-K/A filed with the Securities and Exchange Commission on April 1, 2008 (the “Form 10-K/A”). The accompanying condensed consolidated balance sheet as of December 31, 2007, which has been derived from audited consolidated financial statements, and the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2008 and 2007 included herein have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain only normal recurring adjustments necessary to present fairly the Company’s financial position as of September 30, 2008 and the results of its operations for the three and nine months ended September 30, 2008 and 2007 and cash flows for nine months ended September 30, 2008 and 2007. The results of operations for the three and nine months ended September 30, 2008 and 2007 are unaudited and are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the Company’s consolidated financial statements and related footnotes included in the Annual Report on our Form 10-K/A for the year ended December 31, 2007.

Certain changes in classifications have been made to the prior period financial statements to conform to the current financial statement presentation.

NOTE 2— GOING CONCERN, LIQUIDITY AND CAPITAL RESOURCES

The Company currently has a working capital deficit of approximately $99.2 million and has experienced losses from operations since inception. During the year ended December 31, 2007, the Company had a net loss of approximately $40.8 million and experienced cash outflows from operations during the same period of approximately $30.8 million. For the nine months ended September 30, 2008, the Company had a net loss of approximately $52.9 million, which includes an impairment loss on broadcast assets of $18,263,563, and experienced cash outflows from operations of approximately $21.9 million. In the past, the Company has relied on equity and debt financing and the sale of assets to provide the necessary liquidity for the business to operate and will need to have access to substantial funds over the next twelve months in order to fund its operations. As of September 30, 2008, the Company has approximately $0.8 million of unrestricted cash on hand.

On February 13, 2008, the Company and its lenders (together or separately, Silver Point Capital and Wells Fargo FootHill) entered into the Third Amended and Restated Credit Agreement (“Credit Agreement”) in which the Company refinanced its previous senior credit facility. The amended $53.0 million credit facility, comprised of an $8.0 million revolving credit line and term loans of $45.0 million, maturing on February 13, 2011, was used to refinance the existing senior credit facility. Outstanding principal balance under the credit facility bears interest at LIBOR or the alternate base rate, plus the applicable margin. The applicable margin is 9.5% for the LIBOR loans and 8.5% on the alternate base rate loan. The minimum LIBOR is 4.5%. The alternate base rate is (i) the greatest of (A) the Prime Rate, (B) the Federal Funds Rate in effect on such day plus fifty (50) basis points (0.50%), and (C) seven and one-half percent (7.50%) per annum. The Company is required to pay an unused line fee of .5% on the unused portion of the credit facility. The credit facility is secured by the majority of the assets of the company. The Company is subject to new financial and operating covenants and restrictions based on trailing monthly and twelve month information. The Company borrowed $50.5 million under the new facility. Due to certain restrictions based on the value of the loan collateral, the Company did not have access to the remaining $2.5 million at that time.

On March 19, 2008, the Company entered into an amendment (“First Amendment”) to its Credit Agreement. Under the terms of the First Amendment, the lender group agreed to forbear from exercising certain of their rights and remedies with respect to designated defaults under the Credit Agreement through the earlier of (a) April 18, 2008 and (b) the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to enter into agreements with respect to the sale of certain of its assets and the Company’s failure to secure approvals for, and meet other criteria with respect to, financing alternatives necessary to meet the Company’s immediate capital requirements. Additionally, the applicable margins on LIBOR loans and base rate loans were increased to 10.0% and 9.0% respectively. Pursuant to the First Amendment the Lenders may exercise any and all remedies available under the Credit Agreement, including making the loan immediately due and payable.

Table of Contents

On April 28, 2008, the Company entered into a second amendment (“Second Amendment”) to its Credit Agreement which had been previously amended on March 19, 2008 as noted above. Under the terms of the Second Amendment, the lender group agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and any other defaults or events of default under the Credit Agreement other than any specified defaults described in the Second Amendment (which include, but are not limited to, breaches of certain affirmative and negative covenants, among others) through the earlier of (a) May 5, 2008 and (b) the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to consummate a proposed financing with certain investors. The Second Amendment also provided for the lender group to make additional loans to the Company in an amount not to exceed $5.5 million (which includes additional loans funded pursuant to the First Amendment) and increases the applicable margins on LIBOR loans and base rate loans to 12.0% and 11.0% respectively.

On June 24, 2008, the Company entered into a third amendment (“Third Amendment”) to the Credit Agreement. Under the terms of the Third Amendment, the lender group has agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and certain other defaults described in the Third Amendment through the earlier of (a) December 23, 2008 and (b) the date of occurrence of events of default or certain other events. Notwithstanding the foregoing, the lenders may terminate the forbearance on and after September 15, 2008 in their sole discretion. The Third Amendment also provides for the lender group to make additional loans to the Company in an amount not to exceed $6.5 million, subject to certain conditions in the Third Amendment and the Lenders’ sole discretion. Additionally, the applicable margins on LIBOR loans and base rate loans were decreased to 10.0% and 9.0% respectively. The Company used a portion ($17.5 million) of the proceeds from the transactions with Luken Communications, LLC as described in Note 4 - Transactions with Luken Communications, LLC to pay down a portion of the credit facility. Following this pay down and after additional advances under the Term C facility approximately $40.1 million remains outstanding under the credit facility as of September 30, 2008.

The Company is currently in default under its existing loan agreements with Silver Point. Existing events of default include, but are not limited to, the Company’s failure to pay interest when due, lateness on certain payments due under the Company’s satellite and programming agreements and failure to achieve certain performance metrics, including minimum monthly revenue and EBITDA benchmarks.

Even with the refinanced credit facility, the additional funds provided by the amended credit facility and the proceeds from the transactions as described in Note 4 - Transactions with Luken Communications, LLC are not sufficient to meet all of the anticipated liquidity needs to continue operations of the Company for the next twelve months. Accordingly, the Company will have to raise additional capital or increase its debt immediately to continue operations. If the Company is unable to obtain additional funds immediately or if the funds cannot be obtained on favorable terms, management may be required to liquidate substantially all available assets, restructure the company, cease all or a part of operations, seek protection under U.S. bankruptcy laws and regulations, or undertake other actions. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Adoption of New Accounting Standards

Effective January 1, 2008, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157") for its financial assets and liabilities. In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-2, "Effective Date of FASB Statement No. 157", which delays the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. SFAS 157 establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurement. The adoption of SFAS 157 on January 1, 2008 did not have a material effect on the Company's Unaudited Condensed Consolidated Financial Statements. See Note 11 for additional information. In October 2008, the FASB issued FSP SFAS 157-3 “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP SFAS 157-3”), which is effective upon issuance for all financial statements that have not been issued. FSP SFAS 157-3 clarifies the application of SFAS 157, in a market that is not active. We have adopted FSP SFAS 157-3 effective with this filing. FSP SFAS 157-3 does not have a material impact on our financial position, financial performance or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" ("SFAS 159") effective as of the beginning of the first fiscal year that begins after November 15, 2007. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value with changes in fair value recognized in earnings for each reporting period. The adoption of SFAS 159 on January 1, 2008 did not have any effect on the Company's Unaudited Condensed Consolidated Financial Statements as the Company did not elect any eligible items for fair value measurement.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any non-controlling interest at their fair values as of the acquisition date. SFAS 141(R) also requires that acquisition-related costs be recognized separately from the acquisition. SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting SFAS 141(R) will be dependent on the future business combinations that the Company may pursue after its effective date, if any.

Table of Contents

In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”).” The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement applies to all entities that prepare consolidated financial statements, except not-for-profit organizations. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141 (R). This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The effective date of this Statement is the same as that of the related Statement 141(R). This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No.133 (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133”), and its related interpretations, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The Company will be required to adopt SFAS 161 in the first quarter of 2009. The Company is currently evaluating the requirements of SFAS 161 and has not yet determined what impact the adoption will have on its consolidated statement of financial position, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets . FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years, requiring prospective application to intangible assets acquired after the effective date. The Company will be required to adopt the principles of FSP 142-3 with respect to intangible assets acquired on or after January 1, 2009. The impact that FSP 142-3 will have on the Company's consolidated financial statements when effective will depend upon the nature, terms and size of any acquisitions completed after the effective date.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP EITF 03-6-1 on its consolidated financial position and results of operations.

NOTE 4 — TRANSACTIONS WITH LUKEN COMMUNICATIONS, LLC

On June 24, 2008, the Company closed several transactions with Luken Communications, LLC, a company controlled by Henry Luken, III, former President & CEO of the Company and former Chairman of the Board of Directors, and currently the Company’s largest shareholder with approximately 17% beneficial ownership of the Company’s common stock (the “Investors”). The Investors purchased the outstanding shares of the Company’s Retro Television Network (“RTN”) subsidiary, Retro Programming Services, Inc., for $18.5 million (“Stock Purchase Agreement”). The Company has the option to repurchase RTN at any time during the six month option period which expires on December 24, 2008 on terms described below. Concurrently with the closing of the RTN sale, the Investors purchased, for $1.5 million, warrants (“Warrant Agreement”) to purchase up to 8,050,000 shares of the Company’s common stock for $1.10 per share. The Company also entered into Asset Purchase Agreements with the Investors for the sale by the Company of certain television stations (“Station Sales”) for $17.5 million. The Company received a $5.0 million prepayment on the Station Sales from the Investors at closing. The Station Sales will be consummated, and the Company will receive the remaining payment of $12.5 million, upon receipt of Federal Communications Commission (“FCC”) and certain other approvals.

The transactions with the Investors were approved by a special committee of the board of directors of the Company, which received a fairness opinion from an independent investment bank that the financial consideration being received in the transactions was fair for the Company’s unaffiliated stockholders.

The Company retired a portion of its credit facilities in the principal amount of $17.5 million with a portion of the proceeds received from these transactions. The remaining proceeds, together with any future proceeds, will be used for additional reductions of debt and to the extent available to fund operations.

Table of Contents

Sale of RTN

The Company received $18.5 million in cash for all of the outstanding shares of RTN, a wholly owned subsidiary of the Company, from the Investors. RTN is a growing network with 80 affiliates that currently covers 39% of U.S. television households. The Company has the option (“RTN Option”) to repurchase RTN for $27.75 million plus an amount equal to the capital and net operating expenditures (capped at $1.75 million in the aggregate) invested by the Investors prior to the repurchase (together with a return on such expenditures at the rate of 12% per annum), collectively the “Option Price”, which is exercisable at any time through December 24, 2008. Under certain circumstances related to the Company’s failure to consummate the Station Sales (see herein below), the Investors will be entitled to require the Company to exercise the RTN Option. In connection with the Stock Purchase Agreement, the Company has agreed to continue providing operational support services of the same scope, quality and service levels that were being provided to RTN prior to its sale, in exchange for a stated monthly fee, and has also agreed to grant a cost-free, non-exclusive, perpetual, non-transferable license to RTN to use the Company’s Central Automated Satellite Hub (“CASH”) delivery technology solely in connection with operating RTN and its providing of programming content and advertising across the network. Additionally, the Company granted to the Investor a second, cost-free, non-exclusive, perpetual, non-transferable license to use the Seller’s CASH System in connection with the non-RTN network operations of the Investor and its subsidiaries.

In the event the Company does not exercise the RTN Option and if within the 12-month period following the closing of the RTN sale, the Investors sell RTN to an unaffiliated third party, for an amount in excess of $18.5 million, the Company will be entitled to receive 50% of such excess (net of transaction costs).

In the event the RTN Option is exercised by the Company prior to the consummation of the Station Sales, $12.5 million of the Option Price shall be retained by the Company and applied, effectively, as an additional prepayment by the Investors of the $12.5 million balance due for the Station Sales.

The Company has continued to engage an investment banking firm to explore strategic alternatives, including potentially working with strategic partners, for the repurchase of RTN during the option period and also will assist in identifying additional sources to help finance additional digital networks, similar to the RTN model, that the Company may develop and deliver using the CASH technology system.

Immediately prior to the sale of RTN to the Investors, the Company entered into an agreement (“New RTN Rights Agreement”) with Larry Morton, a director, and Neal Ardman, consultant and co-founder of RTN and Retro Television Networks, LLC (“Retro LLC”), a company affiliated with Messrs. Morton and Ardman, which superseded in its entirety an agreement entered into with RTN and its affiliates and the Company in December 2005 under which Retro LLC received certain rights to receive 10% of net sales revenues of RTN and 20% of the sales price upon any sale of RTN. Under the New RTN Rights Agreement, Retro LLC agreed, among other things, that the sale of RTN by the Company to Luken Communications, LLC would not trigger Retro LLC’s right to receive a portion of the re-purchase price and that while RTN is owned by Luken Communications, LLC Retro LLC would be entitled to 5% of pre-tax earnings. Retro LLC also agreed that any exercise of the RTN Option by the Company would not trigger Retro LLC’s right to receive a portion of the re-purchase price. Upon an exercise of the RTN Option pursuant to which RTN is acquired by the Company or an affiliate thereof, Retro LLC would have the right going forward to 10% of pre-tax earnings of RTN and 20% of any future sale proceeds (net of transaction costs).

At June 30, 2008, the Company recorded the sale of RTN as a financing transaction as the RTN Option was deemed to be a “right of return” and until the option period expires the transaction cannot be recorded as a sale or gain from the sale recognized. In addition, it is the intent of the Company to exercise the RTN Option if the financing is available. Accordingly, the Company has recorded the proceeds from the sale, $18.5 million, as amounts due to Luken Communications, LLC, a liability. The underlying assets of RTN and the results of its operations continue to be included in the consolidated financial statements of the Company until such time that the Company recognizes the sale of RTN for accounting purposes.

Because the sale of RTN is currently deemed to be, and reported as, a financing transaction, the difference between the sales price of $18.5 million and the repurchase price of $27.75 million, or $9.25 million, is deemed to be interest expense and will be accrued and expensed pro-rata over the six-month option period. Of this total, amounts of $4,701,657 and $5,007,657 were recognized as interest expense to related parties during the three and nine month periods ended September 30, 2008. In the event the RTN Option is exercised and RTN repurchased from the Investors for the Option Price, the repurchase will be recognized and reported as the repayment of the $18.5 million and the difference of $9.25 million recognized as interest expense over the six-month period. No gain or loss will be recognized on either transaction, and although the Investors are related parties, because the debt will be extinguished at its carrying value there will be no affect on the Company’s capital.

In the event the RTN Option expires un-exercised the Company will no longer recognize, nor report, the transaction as a financing transaction. At that time the Company will, instead, deem RTN to have been sold and account for the transaction accordingly. Additionally at that time, the amount of the $9.25 million previously recognized and reported as interest expense to related parties will be reversed in the period of the event.

Warrant Agreement

Simultaneous with the RTN transaction, the Company sold warrants to Investors giving them the right to purchase 8,050,000 shares of the Company’s common stock at an exercise price of $1.10 per share, exercisable through September 7, 2009 (the “Luken Warrants”). The sales price of the warrants was $1.5 million. In the event the Luken Warrants are exercised, the Investors’ beneficial ownership in the Company would increase from approximately 17% to approximately 30%.

Table of Contents

The Warrant Agreement provides the Investors with the right to require the Company to repurchase all, but not less than all, of the Luken Warrants for a price of $1.5 million upon a Seller Trigger Event, defined as (a) a failure by the Company and its applicable subsidiaries to consummate the Station Sales on or prior to December 24, 2008 for any reason other than (i) circumstances constituting a Purchaser Trigger Event or (ii) a termination by the Company under the terms of the Station Sales by which the Company terminates such agreement and returns the $5.0 million prepayment and makes other payments as required by the Asset Purchase Agreements; provided however that if Seller has duly filed applications with the FCC and at December 24, 2008 there is reasonable basis for determining that the FCC will grant consent to the consummation of the transfer of licenses in the Stations Purchase, such date shall be extended to March 24, 2009 (the “Station Purchase Extension”); or (b) any action is commenced in any liquidation or bankruptcy or similar proceeding to set aside the Stock Purchase Agreement or Stations Sales or to otherwise reject the agreements related thereto as executory contracts.

In accordance with the Warrant Agreement, as soon as practicable after the 180^th day after June 24, 2008, the Company shall use commercially reasonable efforts to file a registration statement (on Form S-3 if eligible, or Form S-1 if not eligible) covering the resale of the underlying securities by the Investor and use its commercially reasonable efforts to (i) respond promptly to all SEC requests for information and filings and (ii) cause such registration statement to become effective as soon as possible.

The Company’s Condensed Consolidated Balance Sheet, as of September 30, 2008 classifies the $1.5 million received from the Luken Warrants as a liability following guidance in accordance with FASB Statement No. 150 – “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”) as the Investor can put the warrants back to the Company for redemption if certain events do not occur. These events are outside the control of the Company as one of the events is the inability to consummate the Station Sales. While it is the intent of the Company to consummate this transaction it can only be done upon obtaining approval from the FCC. The Company has concluded that this approval process is not perfunctory and customary and therefore cannot conclude with certainty that it will occur.

The Company has recorded the $1.5 million received in connection with the Luken Warrants in Amounts due to Luken Communications, LLC in the condensed consolidated balance sheet as of September 30, 2008. The Company will reassess the classification of the Luken Warrants at each reporting period in accordance with the applicable accounting pronouncements based on the facts at the time.

Stations Asset Purchase Agreements

On June 24, 2008, the Company entered into agreements with the Investors for the sale (“Station Sales”) of all of the assets used in the business and operations of television stations located in six markets, including licenses, construction permits and other instruments of authorization (“Licenses”) issued by the FCC and certain other assets (collectively with the Licenses, the “Station Assets”) for a total combined purchase price of $17.5 million (“Stations Purchase Price”). The FCC approved these assignment applications by public notices dated October 29, and October 30, 2008. The markets in which these stations operate include:

Amarillo (Texas),

Waco (Texas),

Fort Myers/Naples (Florida),

Minneapolis (Minnesota),

Oklahoma City (Oklahoma), and

Tulsa (Oklahoma).

The Company received $5.0 million as prepayment on the Stations Purchase Price from the Investors, which payment is nonrefundable except in the event the Company determines to sell the Station Assets to another party prior to consummating the sale of the Station Assets with the Investors and in certain other circumstances. The $5.0 million prepayment is included in amounts due to Luken Communications, LLC in the condensed consolidated balance sheet as of September 30, 2008 as the sale is subject to FCC approval and the transaction can be terminated by either party under certain events requiring the repayment of the $5.0 million payment to the Investors. The Company will receive the remaining $12.5 million of the Stations Purchase Price upon consummation of the Station Sales with the Investors. The Company anticipates that the $12.5 million will be utilized primarily to service the Company’s debt to Silver Point.

Table of Contents

The Company has the right to terminate the Station Sales agreements prior to consummation of the sale, subject to certain provisions (including repayment of the $5.0 million initial prepayment). In the event the Company secures an offer to sell the Station Assets to a party other than the Investors for a purchase price of less than $22.0 million, the Investors shall have the right to match the terms of such offer and proceed to consummation under such terms. The Investors have the right to terminate the agreement if the Station Sales has not been consummated within 18 months of the filing date of the FCC transfer applications.

In addition to the Stations Purchase Price, if within the 12-month period following the closing of the Station Sales, the Investors sell the Stations, collectively or individually, to an unaffiliated third party, for an amount in excess of the Stations Purchase Price, the Company will be entitled to 50% of such excess. If, within the second 12-month period following the closing of the Station Sale, the Investors sell the Stations, collectively or individually, to an unaffiliated third party, for an amount in excess of the Stations Purchase Price, the Company will be entitled to 25% of such excess.

The assignment applications were granted by the FCC and public notice given on October 29, and October 30, 2008. Under the contracts, the closing of the Station Sales is to occur within twenty business days after the grant of FCC consent becomes a final order.

This agreement supersedes a previous Asset Purchase Agreement dated April 3, 2008 with Luken Communications, LLC for the sale of certain broadcast assets and television stations which are included in the current agreement.

The Company has not reclassified the assets related to this transaction to assets held for sale as it does not meet the criteria established by SFAS No. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets , which includes standards that determine the classification of long lived assets.

Transaction Fee and Related Warrants issued to Investment Advisors

In connection with the agreement between the investment advisors and the Company, the investment advisors received warrants to purchase up to 1,075,279 shares on the same terms as the Luken Warrants in exchange for a $200,000 reduction to their fees, and $200,000 in cash as consideration for their assistance with the transactions with the Investors. The intrinsic value of the warrants was determined to be $148,046, based on a Black-Scholes valuation, and is included in other current assets in the condensed consolidated balance sheets at September 30, 2008, pending final resolution of these transactions.

SEC filing

The transactions with Luken Communications, LLC and all of the agreements discussed above were submitted to the SEC with the form 8-K filed by the Company on July 1, 2008.

NOTE 5 — ASSET PURCHASE AGREEMENTS

Purchase from Renard Communications Corp.

On August 15, 2007, the Company entered into an asset purchase agreement with Renard Communications Corp. for the purchase of certain licenses, construction permits and other instruments of authorization issued by the FCC and certain other assets. The agreement was terminated on June 11, 2008 and the Company has negotiated the partial return of the initial $400,000 deposit which was held in escrow pending closing. The portion forfeited, or $284,000, was recorded as a charge to loss on disposal of assets during the period ended September 30, 2008. The remaining portion, or $116,000, is classified as broadcasting station acquisition rights pursuant to assignment agreements as of September 30, 2008, since the funds were not received until subsequent to that date.

Other Agreements

In connection with the 2007 merger transaction, the Company and Univision Television Group (“Univision”), preferred stock holders, entered into a one year $15.0 million promissory note secured by two television stations located in Utah. In lieu of a cash repayment, the Company filed an application with the FCC on July 26, 2007 to transfer the television stations to Univision Television Group, Inc. in satisfaction of the principal amount of the note. The television station assets include broadcast licenses with book values of $7,884,631 and broadcasting equipment with book values of $487,436, a total of $8,372,067, as of December 31, 2007. Accordingly, these assets were classified as held for sale as of December 31, 2007. On June 19, 2008, the Company and Univision filed with the FCC to dismiss the assignment of licenses related to these assets and file public notice of such intent on June 24, 2008. Therefore, since these assets are no longer held for sale, the assets have been reclassified and included in their respective accounts in the condensed consolidated balance sheet as of September 30, 2008.

In October, 2007, the Company signed a non-binding letter of intent for the sale of certain television stations which include broadcast licenses with book values of $1,052,548 and broadcasting equipment with book values of $102,307, a total of $1,154,855. The Company had classified these assets as held for sale as of December 31, 2007. The option term under the letter of intent governing this transaction has expired and as such the related amount was reclassified and included in their respective accounts in the condensed consolidated balance sheet as of September 30, 2008.

On July 21, 2008, the Company signed a letter of intent and subsequently on October 7, 2008 executed an asset purchase agreement for the sale of certain television stations including broadcast licenses with book values of $5,131,000 and broadcasting equipment with book values of $453,000, a total of $5,584,000. The Company continues to account for the assets related to this transaction as held and used, since the transaction does not meet the criteria established by SFAS No. 144 – Accounting for the Impairment or Disposal of Long-Lived Assets, for reclassifying assets as held for sale. However, since the selling price of the assets per the asset purchase agreement is less than the respective carrying values the assets were deemed to be impaired with respect to that difference and a charge was recorded during the period ended September 30, 2008, as an operating cost and a reduction in broadcast licenses. That charge totaled $1,584,000.

Table of Contents

NOTE 6 — INTANGIBLE ASSETS

The Company recorded an impairment charge of approximately $18.3 million during the quarter ended September 30, 2008, which included an impairment to the carrying values of our broadcast licenses of $18.1 million, related to 11 of our television stations; and an impairment to the carrying values of our tangible broadcast assets of $0.2 million, related to 2 of our television stations. As required by SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we tested our unamortized intangible assets for impairment at September 30, 2008, between the required annual tests, because we believed events had occurred and circumstances changed that would more likely than not reduce the fair value of our broadcast licenses and related tangible assets below their carrying amounts. These events included primarily: (1) the completion of an appraisal by an independent party of our television stations; and (2) entering into an asset purchase agreement (“APA”) to sell one of our television stations located in Little Rock, Arkansas at an amount less than its carrying value. Other factors considered include: (a) the continued decline of the price of our common stock; (b) the decline in the current selling prices of television stations; and (c) the lower growth in advertising revenues.

Determining the fair value of our television stations requires our management to make a number of judgments about assumptions and estimates that are highly subjective and that are based on unobservable inputs. Significant weight was given to the results of the third party appraisal and it was the primary basis for the amount of the charge, along with the terms agreed to in the APA. However, the actual results and the ultimate value of the stations may differ from the appraised values; and it is possible that such differences could have a material impact on our financial statements.

As noted above, the Company is required under SFAS 142 to test its indefinite-lived intangible assets on an annual basis or whenever events or changes in circumstances indicate that these assets might be impaired. As a result, if the current economic trends continue and the credit and capital markets continue to be disrupted, or we enter into additional agreements to sell broadcast assets at less than their carrying values, it is possible that the Company may record further impairments in the fourth quarter of 2008.

NOTE 7 — NOTES PAYABLE

Long-Term Debt

Long-term debt as of September 30, 2008 and December 31, 2007 consisted of the following:

	September 30, 2008			December 31, 2007
	(In thousands)
Senior Credit Facility	$	40,062		$	50,317
Luken Communications, LLC		25,000			—
Merger Related Party - Univision		15,000			15,000
Installment Notes and other debt		10,649			10,913
Line of Credit		992			994
Capital Lease Obligations		155			186

Total Debt	$	91,858		$	77,410
Less: Current maturities		(83,781	)		(68,272	)

Long-term debt	$	8,077		$	9,138

Senior Credit Facility

On February 13, 2008, the Company and its lenders entered into the Third Amended and Restated Credit Agreement (“Credit Agreement”) in which the Company refinanced its previous credit facility. The amended $53.0 million credit facility, comprised of an $8.0 million revolving credit line and term loans of $45.0 million, matures on February 13, 2011, was used to refinance the existing indebtedness senior credit facility. Outstanding principal balance under the credit facility bears interest at LIBOR or the alternate base rate, plus the applicable margin. The applicable margin is 9.5% for the LIBOR loans and 8.5% on the alternate base rate loan. The minimum LIBOR is 4.5%. The alternate base rate is (i) the greatest of (A) the Prime Rate, (B) the Federal Funds Rate in effect on such day plus fifty (50) basis points (0.50%), and (C) seven and one-half percent (7.50%) per annum. The Company is required to pay an unused line fee of .5% on the unused portion of the credit facility. The credit facility is secured by the majority of the assets of the company. The Company is subject to new financial and operating covenants and restrictions based on trailing monthly and twelve month information. The Company borrowed $50.5 million under the new facility. Due to certain restrictions based on the value of the loan collateral, the Company did not have access to the remaining $2.5 million at that time.

On April 28, 2008, the Company entered into a second amendment (“Second Amendment”) to its Credit Agreement which had been previously amended on March 19, 2008 as noted above. Under the terms of the Second Amendment, the lender group agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and any other defaults or events of default under the Credit Agreement other than any specified defaults described in the Second Amendment (which include, but are not limited to, breaches of certain affirmative and negative covenants, among others) through the earlier of (a) May 5, 2008 and (b) the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to consummate a proposed financing with certain investors. The Second Amendment also provided for the lender group to make additional loans to the Company in an amount not to exceed $5.5 million (which includes additional loans funded pursuant to the First Amendment) and increased the applicable margins on LIBOR loans and base rate loans to 12.0% and 11.0% respectively.

On June 24, 2008, the Company entered into a third amendment (“Third Amendment”) to the Credit Agreement. Under the terms of the Third Amendment, the lender group has agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and certain other defaults described in the Third Amendment through the earlier of (a) December 23, 2008 and (b) the date of occurrence of events of default or certain other events. Notwithstanding the foregoing, the lenders may terminate the forbearance on and after September 15, 2008 in their sole discretion. The Third Amendment also provides for the lender group to make additional loans to the Company in an amount not to exceed $6.5 million, subject to certain conditions in the Third Amendment and the Lenders’ sole discretion. Additionally, the applicable margins on LIBOR loans and base rate loans were decreased to 10.0% and 9.0% respectively. The Company used a portion ($17.5 million) of the proceeds from the transactions with Luken Communications, LLC as described in Note 4 – Transactions with Luken Communications, LLC to pay down a portion of the credit facility. Following this pay down and after additional advances under the Term C facility, approximately $40.1 million remains outstanding under the credit facility as of September 30, 2008.

On October 16, 2008, the Board appointed Mr. Paul Brissette as Chief Restructuring Officer. Subsequent to Mr. Brissette’s appointment, the senior lender group advanced $400,000 to the Company under the Term C facility.

Table of Contents

Even with the refinanced credit facility, the additional funds provided by the amended credit facility and the proceeds from the transactions as described in Note 4 – Transactions with Luken Communications, LLC are not sufficient to meet all of the anticipated liquidity needs to continue operations of the Company for the next twelve months. Accordingly, the Company will have to raise additional capital or increase its debt immediately to continue operations. If the Company is unable to obtain additional funds when they are required or if the funds cannot be obtained on favorable terms, management may be required to liquidate substantially all available assets, restructure the company or in the extreme event, cease operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Merger Related - Univision

Pursuant to the March 2007 Merger Transaction, the Company issued a promissory note to Univision Television Group, Inc. as partial consideration for the exchange of their shares of EBC Series A preferred stock. This promissory note in the amount of $15.0 million was due and payable March 30, 2008 with interest accruing at an annual rate of 7.0%.

The promissory note is secured by two television stations, originally sought to be transferred under an asset purchase agreement entered into for the same purpose. The Company had intended to transfer the two television stations securing the obligation in lieu of a cash payment for the debt principal. However, on June 19, 2008, the Company and Univision filed with the FCC to dismiss the assignment of licenses related to these assets and file public notice of such intent on June 24, 2008. Until such time as the requests are granted, interest continues to accrue at an annual rate of 7% and the note remains unpaid.

Installment notes and other debt

In September, 2008, the Company executed modification agreements for two installment loans whereby monthly principal and interest payments totaling $661,428 and $276,585 are suspended until June, 2009 and September, 2009 respectively, at which time balloon payments of $716,548 and $283,019 respectively are due and monthly principal and interest payments will resume until maturity.

Line of Credit

At September 30, 2008, the Company had a $1.0 million line of credit with an Arkansas bank, with interest payable monthly at 7.5%, due October 23, 2008 and secured by various broadcast assets and Company guarantees. The outstanding balance at September 30, 2008 was $991,771. The Company is currently negotiating with the bank to extend the maturity date.

NOTE 8 — MANDATORILY REDEEMABLE SERIES A CONVERTIBLE NON-VOTING PREFERRED STOCK

As of September 30, 2008, the Company had 2,050,519 shares issued and outstanding of the Company’s Series A Convertible Non-Voting Preferred Stock (the “Series A Preferred”). The Series A Preferred ranks senior to all outstanding shares of the Company’s common stock. The Series A Preferred accrues compounded dividends at the rate of 7% per annum of the original issue price whether or not the Company declares a dividend payable. In addition, if the Company declares a dividend on its common stock at any time, the holders of Series A Preferred automatically participate on an “as if” converted to common stock basis with the common shareholders.

The Series A Preferred contains liquidation provisions that rank senior to any and all claims of the common stockholders, such that upon the involuntary liquidation, dissolution, or winding up of the Company, the holders of Series A Preferred would be entitled to receive a liquidation amount equal to the amount of the original issue price plus accrued dividends. A change of control of the Company is also deemed to be an event equivalent to a liquidation, dissolution or winding up event under the terms of the Certificate of Designation for the Series A Preferred.

The holders of Series A Preferred may convert their shares at any time into shares of the common stock of the Company on a one-for-one basis. The conversion rate is subject to adjustment such that if the Company were to issue any share of common stock, except for (a) issuances pursuant to the exercise of any preferred stock, (b) issuances subject to a compensation plan for employees, directors, consultants or others approved by the board of directors or majority holders of the common stock of the Company, (c) stock issued pursuant to a declared dividend, stock split or recapitalization, (d) stock issued to sellers of companies acquired pursuant to board approval, (e) stock issued to banking institutions as compensation for financing received and (f) stock issued from the treasury of the Company, or any instrument convertible or exercisable into common stock of the Company at a rate which if added to the consideration per share of common stock received for any such purchase right is less than the current rate, the conversion rate automatically adjusts to that lower rate. At any time after five years after issuance, the Company may elect to redeem shares of Series A Preferred in cash. In addition, after five years after issuance and upon a majority of the holders of Series A Preferred voting to redeem their shares, the holders of Series A Preferred may require the Company to redeem their Series A Preferred for cash. The redemption price is equal to the original price of the Series A Preferred plus all accrued Dividends as of the date of redemption.

In connection with the sale of common stock warrants to Investors (“Luken Warrants”), (see Note 4 – Transactions with Luken Communications, LLC), the Company determined that the conversion rate is not subject to adjustment as of September 30, 2008 pursuant to EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments , (“EITF 00-27”) which states that changes to the conversion terms that would be triggered by future events not controlled by the issuer should be accounted for as contingent conversion options, and the intrinsic value of such conversion options would not be recognized until and unless the triggering event occurs. While the warrants have been issued to Luken Communications, LLC thus triggering a conversion rate adjustment per the Certificate of Designation, there is a period of time where the Luken Warrants can be put back to the Company for redemption in cash, thus creating a change to the conversion terms triggered by a future event that is not in the control of the Company. Lack of FCC approval for the Station Sales, which could trigger the put option in the Warrant Agreement, is outside the control of the Company and therefore it is management’s position that this is a contingent conversion option.

Table of Contents

In the event that the contingency is eliminated, the beneficial conversion feature of the Certificate of Designation will require that the conversion rate of the Series A Preferred be adjusted. Following guidance provided by EITF 00-27 and EITF 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios , (“EITF 98-5”) the Company will record a dividend to preferred shareholders against additional paid in capital in the amount of $1.5 million.

On June 24, 2008, the Company issued warrants to an investment banking firm to purchase 1,075,279 shares of the Company’s common stock at an exercise price of $1.10 per share as partial consideration for advisory services performed in connection with the Luken transactions. Pursuant to EITF 00-27, the Company recorded a preferred dividend in the amount of $207,395 to reflect value transferred to the holders of the Series A Preferred stock resulting from the adjustment of the conversion rate from 1.0 to 1.02 and the reset of the conversion price from $5.13 per share to $5.03 per share.

The Company has evaluated the embedded conversion feature in the Series A Preferred and determined it did not meet the criteria for bifurcation under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” during the three and nine months ended September 30, 2008. In addition, the Company accounts for the Series A Preferred in accordance with SEC Accounting Series Release 268 — Presentation in Financial Statements of Redeemable Preferred Stocks” and EITF D-98: “Classification and Measurement of Redeemable Securities,” (“EITF D-98”) and thus has classified the Series A Preferred outside of stockholders’ equity.

The Company believes that it is not probable that the holders of the Series A Preferred would currently elect to convert their shares to common stock because the current trading price of the Company’s common stock is lower than the conversion price. Therefore and under the guidance of EITF D-98, the carrying value of the Series A Preferred as of September 30, 2008 is the original issue amount and does not include any accreted dividends or any other adjustment.

For the three month period ended September 30, 2008, the Company recorded dividends in the amount of $198,661. For the nine month period ended September 30, 2008, the Company recorded dividends, including these attributable to the beneficial conversion of $207,395, in the amount of $786,138. These amounts are recorded as deductions from net loss attributable to common shareholders. As of September 30, 2008, dividends payable to the Series A Preferred shareholders are $1,135,540 and included in other non-current liabilities.

NOTE 9 — STOCK OPTION PLANS

Stock-based compensation expense for the three and nine months ended September 30, 2008 was $0.2 million and $0.8 million, respectively, compared to $0.4 million and $1.7 million, respectively, in 2007. As of September 30, 2008, there was $1.7 million of total unrecognized compensation cost related to unvested share-based compensation awards granted under the Incentive Plan, which does not include the effect of future grants of equity compensation, if any. Of the total $1.7 million, the Company expects to recognize approximately 10.3% during the remainder of 2008 and the balance in 2009 through 2013. The weighted average period over which the $1.7 million is to be recognized is 2.86 years.

NOTE 10 — CONTINGENCIES

Stock options to underwriters

In connection with the initial public offering (“Offering”), the Company sold to the representatives of the underwriters in the offering (“Representatives”) an option, for $100, to purchase up to a total of 1,000,000 units at $7.50 per Unit. The Company accounted for the fair value of the option, inclusive of the receipt of the $100 cash payment, as an expense of the Offering resulting in an increase and a charge directly to stockholders’ equity. The option has been valued at the date of issuance at $780,000 based upon a Black-Scholes valuation model, using an expected life of five years, volatility of 15.90% and a risk-free interest rate of 3.980%. The volatility calculation is based on the 180-day volatility of the Russell 2000 Index. An expected life of five years was taken into account for purposes of assigning a fair value to the option. The option may be exercised for cash, or on a “cashless” basis, at the holder’s option, such that the holder may receive a net amount of shares equal to the appreciated value of the option. The Units issuable upon exercise of this option are identical to the Units in the Offering, except that the Warrants included in the option have an exercise price of $6.00. Although the purchase option and its underlying securities have been registered under the Offering, the option grants to holders demand and “piggy back” registration rights for periods of five and seven years, respectively, from the date of the Offering with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses relating to the registration of the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a price below its exercise price.

Litigation

In connection with the merger between the Company and Equity Broadcasting Corporation ("EBC") in March, 2007, EBC and each member of EBC’s board of directors was named in a lawsuit filed by an EBC shareholder in the circuit court of Pulaski County, Arkansas on June 14, 2006. As a result of the merger between EBC and the Company, pursuant to which EBC merged into the Company, the Company, which was renamed Equity Media Holdings Corporation, is a party to the lawsuit. The lawsuit contains both a class action component and derivative claims. The class action claims allege various deficiencies in EBC’s proxy used to inform its shareholders of the special meeting to consider the merger. These allegations include: (i) the failure to provide sufficient information regarding the fair value of EBC’s assets and the resulting fair value of EBC’s Class A common stock; (ii) that the interests of holders of EBC’s Class A common stock are improperly diluted as a result of the merger to the benefit of the holders of EBC’s Class B common stock; (iii) failure to sufficiently describe the further dilution that would occur post-merger upon exercise of the Company’s outstanding warrants; (iv) failure to provide pro-forma financial information; (v) failure to disclose alleged related party transactions; (vi) failure to provide access to audited consolidated financial statements during previous years; (vii) failure to provide shareholders with adequate time to review a fairness opinion obtained by EBC’s board of directors in connection with the merger; and (viii) alleged sale of EBC below appraised market value of its assets. The derivative components of the lawsuit allege instances of improper self-dealing, including through a management agreement between EBC and Arkansas Media.

Table of Contents

In addition to requesting unspecified compensatory damages, the plaintiff also requested injunctive relief to enjoin EBC’s annual shareholder meeting and the vote on the merger. An injunction hearing was not held before EBC’s annual meeting regarding the merger so the meeting and shareholder vote proceeded as planned and EBC’s shareholders approved the merger. On August 9, 2006, EBC’s motion to dismiss the lawsuit was denied. On February 21, 2007, the plaintiff filed a “Motion to Enforce Settlement Agreement” with the court alleging the parties reached an oral agreement to settle the lawsuit. The plaintiff subsequently filed a motion to withdraw the motion to settle and filed a “Third Amended Complaint” on April 10, 2007. This motion added two additional plaintiffs and expanded on the issues recited in the previous complaints. On July 31, 2007, the plaintiff filed a “Fourth Amended Complaint”. This pleading added three new plaintiffs and three new defendants to the proceedings. The three additional defendants bear a fiduciary relationship to three previously named defendants. On July 31, 2007, the plaintiffs filed a “Motion for Class Certification.” A hearing on this issue was held on August 18, 2008. The judge has not issued a ruling in this case.

Management believes that this lawsuit has no merit and asserts that the Company has negotiated in good faith to attempt to settle the lawsuit. Regardless of the outcome management does not expect this proceeding to have a material impact of its financial condition or results of operations in 2008 or any future period.

The Company, along with Retro Programming Services Inc. was named as defendants in a lawsuit filed in Los Angeles Superior Court on September 18, 2008. The plaintiff is CBS Television Distribution Group, a unit of CBS Corporation. The suit alleges breach of contract with respect to multiple broadcast licensing agreements. The parties are in discussions to attempt to arrive at a settlement with respect to this issue. Because of the uncertainty of the outcome no adjustments have been made to the Company’s financial statements with respect to this action.

Although the Company is a party to certain other pending legal proceedings in the normal course of business, management believes the ultimate outcome of these matters will not be material to the financial condition and future operations of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business.

EBC Dissenting Shareholders

In connection with the March, 2007 Merger Transaction shareholders of EBC representing 66,500 shares of EBC Class A common stock elected to convert their shares to cash in accordance with Arkansas law. The Company recorded a liability in the amount of $368,410 to convert the shares plus $9,970 of accrued interest based on a conversion rate of $5.54 per share plus interest accruing from the date of the Merger Transaction at the rate of 9.78% per annum. On July 10, 2007, the dissenting shareholders were paid $378,380 in cash for the value of their shares including all interest accrued to date. Pursuant to Arkansas Code, the dissenting shareholders exercised their right to contest the Company’s valuation and have demanded payment of an additional $17.78 per share plus accrued interest at 9.78% per annum. In accordance with Arkansas Code, the Company has petitioned the court for a determination of the fair value of the shares and believes its valuation will prevail. A court date of December 8, 2008, has been set.

FCC Inquiry

In 2007, the FCC’s Enforcement Bureau commenced an inquiry into whether Montana License Sub, Inc. (a wholly owned subsidiary of the Company), violated the multiple ownership rules in connection with its operation of KLMN(TV), Great Falls, Montana and its relationship with other television stations in the market. A competitor in the market subsequently filed a petition to deny the license renewal application for KLMN (TV), Great Falls, Montana. The Company filed appropriate responses in each proceeding. The FCC staff has informed the Company that the pendency of this complaint has resulted in a tolling on processing other assignment and modification applications involving the Company. In an attempt to resolve the KLMN dispute, the Company is exploring the opportunity to enter into a Consent Decree, whereby the Company will pay an agreed-upon forfeiture to the FCC, and in exchange, subject to certain reporting conditions, will have the two pending complaints dismissed.

NASDAQ

On May 14, 2008, NASDAQ notified the Company of non-compliance with Marketplace Rule 4310(c)(4) due to failure of the Company’s common stock to close above the required $1 minimum bid price for 30 consecutive business days. The Company has until November 10, 2008 to meet the compliance requirements. Compliance can be achieved if the bid price of the common stock closes above $1 for a minimum of 10 consecutive business days during the 180 day period between May 14, 2008 and November 10, 2008.

If compliance with this Rule cannot be demonstrated by November 10, 2008, NASDAQ staff will determine whether the Company meets The NASDAQ Capital Market initial listing criteria as set forth in Marketplace Rule 4310(c), except for the bid price requirement. If it meets the initial listing criteria, NASDAQ will notify the Company that it has been granted an additional 180 day compliance period. If the Company is not eligible for an additional compliance period, NASDAQ will provide written notification that the Company’s securities will be delisted. At the time, the Company may appeal NASDAQ’s determination to delist its securities to a Listing Qualifications Panel.

On October 22, 2008, NASDAQ notified the Company that due to extraordinary market conditions they have implemented a suspension of the compliance period for bid price deficiencies until 1/19/09. Accordingly, the Company’s new bid price compliance deadline is February 17, 2009.

On July 1, 2008, The Company received written notification from NASDAQ that the Company was no longer in compliance with Marketplace Rule 4350(d) (2) (A), which addresses Audit Committee composition. The Company’s Audit Committee was in compliance until Audit Committee member John E. Oxendine’s appointment as Chief Executive Officer which became effective on June 14, 2008. Once Mr. Oxendine became the Company’s CEO, he no longer qualified as an independent Audit Committee member. Pursuant to Marketplace Rule 4350(d)(4)(B), if an issuer fails to comply with the audit committee composition requirement under Rule 4350 (d)(2)(A) due to one vacancy on the audit committee, the issuer will have until the earlier of the next annual shareholders meeting or one year from the occurrence of the event that caused the failure to comply with this requirement; provided, however, that if the annual shareholders meeting occurs no later than 180 days following the event that caused the vacancy, the issuer shall instead have 180 days from such event to regain compliance. An issuer relying on this provision must provide notice to NASDAQ immediately upon learning of the event or circumstance that caused the non-compliance.

On August 25, 2008, Staff notified the Company that with the appointments of Messrs. Jacob J. Barker and Paul Brissette to the Company’s Board of Directors, Staff had determined that the Company complied with Marketplace Rule 4350(c) and the matter relating to the independent director compliance was closed. Based on the Company’s submissions, dated September 3-15, 2008, which enclosed signed unanimous consents of the board resolutions appointing directors to the three independent committees, Staff has now determined that the Company is in compliance with the audit committee requirements under Rule 4350(d)(2), and this matter is now closed.

On August 25, 2008, the Company received written notification from NASDAQ that based on the Form 10-Q for the period ended June 30, 2008, Staff determined that the Company’s stockholders’ equity was a deficit of ($7,302,327). In addition, as of August 22, 2008, Staff determined that the market value of listed securities was $17,979,472. Finally, Staff determined that the Company reported net losses from operations in its annual filings for the years ended December 31, 2007, 2006, and 2005, respectively. Accordingly, the Company does not comply with Marketplace Rule 4310(c)(3), which requires the Company to have a minimum of $2,500,000 in stockholders’ equity or $35,000,000 market value of listed securities or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years.

Under these circumstances, Staff is reviewing the Company’s eligibility for continued listing on The Nasdaq Capital Market. The Company may submit on or before September 16, 2008, a specific plan on achieving and sustaining compliance with the Nasdaq Capital Market listing requirements, including the time frame for completion of the plan. If, after the conclusion of Staff’s review of the plan, Staff determines that the Company’s plan does not adequately address the issues noted, Staff will provide written notification that the Company’s securities will be delisted. At that time, the Company may appeal NASDAQ’s determination to delist its securities to a Listing Qualifications Panel. The Company is currently evaluating all options available with respect to these issues.

The Company submitted its compliance plan on September 16, 2008. NASDAQ is currently in the process of reviewing the plan.

Table of Contents

NOTE 11 — RELATED PARTY TRANSACTIONS

Amounts due (to) from affiliates and related parties consist of the following:

	September 30, 2008			December 31, 2007
Univision Communications, Inc.	$	(3,650,475	)	$	(2,295,837	)
Arkansas Media, LLC and affiliates		5,741			19,581
Royal Palm Capital Management, LLP		(1,250,000	)		(225,000	)
Little Rock TV 14, LLC		(78,627	)		(78,626	)
Larry Morton		(1,138,441	)		—
Luken Communications, LLC		(5,007,657	)		—
Retro Television Network, Inc		(34,462	)		(8,224	)
Other		__			72,364

Due to affiliates and related parties		(11,153,921	)		(2,515,742	)
Less current portion		(10,257,912	)		(2,509,480	)

Non – current portion	$	(896,009	)	$	(6,262	)

Larry Morton

Concurrently with the sale of RTN to the Investors on June 24, 2008, the Company entered into a separation agreement with Larry Morton providing for Mr. Morton’s resignation as RTN’s President and Chief Executive Officer and for severance payments and benefits to be provided to Mr. Morton in connection with such resignation and his previously announced departure from the Company as its President and Chief Executive Officer. Mr. Morton remains as a director of Company. Additionally, Mr. Morton entered into a thirty-six month consulting agreement with the Company under which Mr. Morton is entitled to $5,000 monthly.

NOTE 12 - FAIR VALUE MEASUREMENTS

The Company adopted SFAS 157 effective January 1, 2008 for financial assets and financial liabilities measured on a recurring basis. SFAS 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. There was no impact for adoption of SFAS 157 to the Unaudited Condensed Consolidated Financial Statements as it relates to financial assets and financial liabilities. SFAS No. 157 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The Company invests in short-term interest bearing obligations with original maturities less than 90 days, primarily money market funds. The Company does not enter into investments for trading or speculative purposes. As of September 30, 2008, there were no investments in marketable securities.

Table of Contents

NOTE 13 - SEGMENT DATA

The Company operates its business in three primary reporting segments; the Television Group, Retro Television Network (“RTN”), and Uplink Services. Operations of the Television Group consist of the sale of air time for advertising, and the broadcasting of entertainment and other programming through the Company’s television stations. Operations of RTN consist primarily of the combination of popular entertainment programs of past decades with local sports, weather and news to provide a customized digital feed to its affiliate television stations. Uplink Services operations include the provision of programming, traffic, accounting and billing services to Company-owned television stations, RTN affiliates, and other third party broadcasters through the Company’s centralized master control and satellite uplink facility in Little Rock, Arkansas. The Company does not allocate corporate overhead or the eliminations of intercompany transactions to the primary reporting segments.

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(in thousands)						(in thousands)
Broadcast Revenue
Television	$	6,012		$	7,480		$	20,746		$	21,126
Retro Television Network		885			81			1,806			219
Uplink Services		196			113			622			446
Corporate and eliminations		—			(166	)		(318	)		(494	)
	$	7,093		$	7,508		$	22,856		$	21,297

Depreciation and amortization
Television	$	514		$	482		$	1,523		$	1,475
Retro Television Network		—			—			—			—
Uplink Services		360			356			1,096			924
Corporate and eliminations		167			167			504			453
	$	1,042		$	1,005		$	3,123		$	2,852

Segment operating loss
Television	$	(1,192	)	$	(1,759	)	$	(4,947	)	$	(6,090	)
Retro Television Network		(1,446	)		(387	)		(4,457	)		(929	)
Uplink Services		(203	)		(383	)		(680	)		(1,017	)
Corporate and eliminations		(2,466	)		(3,117	)		(11,061	)		(17,535	)

Consolidated	$	(5,307	)	$	(5,645	)	$	(21,145	)	$	(25,571	)

Impairment charge – Television		(18,263	)		—			(18,263	)		—

Operating loss	$	(23,570	)	$	(5,645	)	$	(39,408	)	$	(25,571	)

NOTE 14— SUBSEQUENT EVENTS

New Retro Television Network (“RTN”) affiliates and contracts

The following table shows stations that have been launched as RTN affiliates since September 30, 2008:

DMA Ranking	Station	DMA	Launched
60	KTUL-DT	Tulsa	October 6, 2008
12	KAZT-DT	Phoenix	October 13, 2008

Management and Board Changes

On October 16, 2008, the Board appointed Mr. Paul Brissette as Chief Restructuring Officer.

Effective as of October 20, 2008, Lori Withrow no longer serves as Secretary of the Corporation and Greg Fess no longer serves as Chief Operating Officer of the Corporation. Effective October 24, 2008, Jason Roberts was elected Secretary of the Corporation.

Effective November 6, 2008, Paul Brissette resigned from the Company’s board of directors.

Effective November 13, 2008, Paul Brissette no longer serves as Chief Restructuring Officer.

John Oxendine continues to serve as Chief Executive and Principal Executive Officer of the Company.

Table of Contents

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

The following is a discussion of the Company’s financial condition and results of operations comparing the interim quarters ended September 30, 2008 and September 30, 2007. You should read this section together with the Company’s consolidated financial statements including the notes to those financial statements, as applicable, for the years and periods mentioned above.

Overview

Equity Media Holdings Corporation (“EMHC”, “we,” “us,” “our,” or the “Company”) was incorporated in Delaware on April 29, 2005 as Coconut Palm Acquisition Corp. (“Coconut Palm”) to serve as a vehicle for the acquisition of an operating business through a merger, capital stock exchange, asset acquisition and/or other similar transaction. On March 30, 2007, Coconut Palm merged with Equity Broadcasting Corporation (“EBC”), with Coconut Palm remaining as the legal surviving corporation; however, the financial statements and continued operations are those of EBC as the accounting acquirer. Immediately following the merger, Coconut Palm changed its name to Equity Media Holdings Corporation.

As of September 30, 2008, the Company has built and aggregated a total of 119 full and low power permits, licenses and applications that it owns or has contracts to acquire. The Company’s FCC license asset portfolio includes 23 full power stations, 34 Class A stations and 62 low power stations. The Company’s English and Spanish-language stations are in 41 markets that represent more than 25% of the U.S. population.

While the Company originally targeted small to medium-sized markets for development, it has been able to leverage its original properties into stations in larger metropolitan markets, including Denver, Detroit, Salt Lake City, Minneapolis and Oklahoma City. The Company’s stations are affiliated with broadcast networks as follows: 12 are affiliated with Univision, 18 are affiliated with the Retro Television Network (“RTN”), 3 are affiliated with MyNetworkTV, 4 are affiliated with FOX, 2 are affiliated with TeleFutura, and 1 is affiliated with ABC.

The Company is the second-largest affiliate group of the top-ranked Univision and TeleFutura networks with 14 affiliates, 13 of which are in the nation’s top-65 Hispanic television markets. The Company believes that it has growth opportunity in these Hispanic properties because each station has a 15-year affiliation agreement with either Univision or TeleFutura, respectively.

RTN was developed to fulfill a need in the broadcasting industry that is occurring now and will continue to occur as broadcast stations switch over to digital programming pursuant to a Federal Communications Commission mandate with a February 19, 2009 deadline.

Digital Television (“DTV”), will allow broadcasters to offer television content with movie-quality picture and CD-quality sound. DTV is a much more efficient technology, allowing broadcasters to provide a “high definition” (“HDTV”), program and multiple “standard definition” DTV programs simultaneously. Providing several programs streams on one broadcast channel is called “multicasting.” The challenge facing many broadcasters is how to effectively program and monetize the value created by DTV.

RTN affiliates enjoy a scalable, cost efficient content solution for their digital channels. A major differentiator between RTN and other potential digital solutions is RTN’s ability to deliver local news, sports, and weather updates to the local RTN affiliate, in addition to the quality RTN programming. This enables the local affiliate to sell local advertising spots to generate revenue.

The ability to deliver localized programs to the RTN affiliate is accomplished through utilization of the Company’s proprietary digital satellite technology system known as “C.A.S.H.” The Central Automated Satellite Hub (“CASH”), system provides the means of delivering a fully automated, 24 hour a day custom feed for each local affiliate. The Company has the capability to launch localized network feeds in all 210 U.S. TV markets and internationally as well.

The Company has historically focused on aggregating stations and developing delivery systems. Over the past eight years, the Company financed itself largely by acquiring television construction permits and stations at attractive valuations. After acquiring the stations, the Company would construct and/or upgrade the facilities and, on a selective basis, sell the station at an increased valuation to fund operations and acquisitions and to service debt.

Historically, it took a few years for the Company’s newly acquired or built stations to generate operating cash flow. In addition, it required time to gain viewer awareness of new station programming and to attract advertisers. Accordingly, the Company typically incurs losses in the first few years after it acquires or builds stations.

Following the March 2007 merger with the Special Purpose Acquisition Company (“SPAC”), Coconut Palm Acquisition Corporation, the Company’s business focus shifted from primarily aggregating stations to increasing RTN affiliate penetration and maximizing revenue and profit for each station.

Currently, the Company is restructuring operations with the goal of increasing cash flow and is executing the divesture of various stations following a strategic review under new management. These initiatives, which the Company has recently begun to implement, include:

Table of Contents

	·	Leveraging the C.A.S.H. system through third party leases and new network development;
	·	Pursuing station divestitures;
	·	Minimizing cash burn at the Corporate and station level through sales generation and cost cutting initiatives;
	·	Continued growth of the RTN affiliate base in key U.S. television markets to achieve a national footprint;
	·	Focusing on increasing sales for RTN;
	·	Diversifying low cost syndicated programming alternatives for RTN;
	·	Enhancing cable and satellite distribution
	·	Pursuing spectrum monetization opportunities

The Company is one of the largest holders of broadcast spectrum in the United States. Each Company station is 6MHz and is located in the 480-680 MHz band. This spectrum adjoins the 700 MHz band and offers similar propagation characteristics. The Company anticipates that it will supplement its revenues by monetizing its significant spectrum portfolio through joint-ventures, leasing or sub-licensing to telecoms and new media companies.

The Company also launched a new corporate and investor relations website (www.EMDAholdings.com) in August 2007. The website features new and expanded content about the Company’s operating businesses, senior management, news and public filings. All key information on the website is available in an up-to-date, interactive format.

Acquisition and Expansion Activity

RTN, currently has a total of 80 affiliations announced that cover 39% of the U.S. television households. Included in this total are affiliations with television stations located in top DMA markets that include San Francisco, Atlanta, Washington, DC, Detroit, Phoenix, Seattle, Tacoma, Denver, Orlando, St. Louis, Pittsburgh, and Charlotte.

RESULTS OF OPERATIONS — THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007

Revenue

The following table sets forth the principal types of broadcast revenue earned by the Company for the periods indicated and the change from one period to the next:

	For the Three Months Ended September 30										For the Nine Months Ended September 30
	2008		2007		Change			% Change			2008		2007		Change			% Change
	(In thousands, except percentages)
Broadcast Revenues
Local	$	2,310	$	2,554	$	(244	)		(9.6	)	$	7,469	$	7,482	$	(13	)		(0.2	)
National		2,044		2,170		(126	)		(5.8	)		6,421		6,068		353			5.8
Other		330		273		57			20.9			1,151		766		385			50.3
Trade & Barter Revenue		2,409		2,511		(102	)		(4.0	)		7,815		6,981		834			11.9
Total Broadcast Revenue	$	7,093	$	7,508	$	(415	)		(5.5	)	$	22,856	$	21,297	$	1,559			7.3

As noted in the Overview, the Company’s operating revenue is derived primarily from advertising revenue. The above table segregates revenue received from local sources compared to national sources, together with gross trade and barter revenues, which is non-cash. Other broadcast revenue is a combination of production, uplink services, news services, and other non-spot broadcast revenue.

For the three months ended September 30, 2008, total Broadcast Revenue decreased $0.4 million, or 5.5%, to $7.1 million when compared to the same period in 2007. Included in this overall decrease was a decline in local broadcast revenues of $244,000, or 9.6%, a decline in national revenue of $126,000, or 5.8%, an increase in other revenue of $57,000, or 20.9% and a decrease in trade and barter revenue of $102,000, or 4.0%.. Increases in political sales of $47,000 and uplink shared services revenue of $103,000 account for the increase in other revenue. These increases in other revenue were offset by a decrease in network compensation of $80,000.

The decrease in revenue for the quarter ended September 30, 2008 of $0.4 million is distributed as follows: English language stations of $725,000, an 18% decline and Spanish language stations of $577,000, also an 18% decline. These decreases were offset by increases in revenue for RTN of $803,000, a growth of 987% and for C.A.S.H. of $83,000, a 74% growth rate. The decrease in revenues derived from English language stations is widespread across almost all the Company’s English language stations. The exception is an increase in revenues of $351,000 attributable to three stations in Montana which were previously held for sale and operated under a local management agreement (“LMA”) with the intended purchaser. These stations, which are all FOX affiliates, are now being run by the Company since the LMA ended early in 2008.

The Spanish language stations showing the greatest declines were the stations in Detroit (WUDT), Salt Lake City (KUTH), and Ft. Myers (WUVF). Three month revenues declined at those three stations by a total of $419,000, or $177,000, $147,000 and $95,000, respectively.

Table of Contents

For the nine months ended September 30, 2008 compared to the same period in 2007, total Broadcast Revenue increased $1.6 million, or 7.3%, to $22.9 million. This increase in revenues is driven by an increase of $834,000, or 11.9%, in trade and barter revenues and increases in national advertising revenue of $353,000, a growth of 5.8%. Other revenue also increased by $385,000, or 50.3%. The increase in trade and barter is due primarily to the continued growth in the Company’s investment in syndicated programming especially as it relates to the growth of RTN. The increases in national advertising revenues have been driven by increased volumes from advertising agency activity of $1.1 million, but was offset by decreases in national paid programming revenue of $747,000. Increase in other revenue resulted from increases in political sales of $215,000 and uplink shared services revenue of $253,000.

Year to date revenue increases by station group or network are as follows: English language stations of $291,000, a 2% growth rate; RTN of $1.588 million, a growth rate of 726%, and C.A.S.H. of $176,000 or a 40% growth rate. These increases were offset by a decrease in revenue for Spanish language stations of $483,000, a 6% decline. Most of the increase in revenues derived from English language stations is attributable to three stations in Montana which were previously held for sale and operated under an LMA with the intended purchaser. These stations, which are FOX affiliates, are now being run by the Company. Revenue for these three stations increased $1.1 million, an increase of 259%. In addition, our ABC affiliate in Cheyenne, WY had an increase in sales for the period of $176,000, a 53% increase. In our Spanish language station group, WUVF, the Univision station in Fort Myers, FL, recorded a $185,000 increase in revenue compared to the same period in 2007, a 16% growth for the period. This increase was offset by decreases in revenue for our stations in Salt Lake City (KUTH - Univision and KUTF - Telefutura), Kansas City (KUKC - Univision) and Detroit (WUDT - Univision), of $310,000 (16%), $154,000 (47%), $186,000 (25%) and $244,000 (39%), respectively . The decline in revenue in these four stations was the result of declines in locally generated revenue by a combined amount of $797,000. National revenue declined at KUTF, KUKC and WUDT by a combined amount of $161,000, but increased by 21%, or $90,000, at KUTH.

Results of Operations

The following table sets forth the Company’s operating results for the three and nine month periods ended September 30, 2008, as compared to the three and nine month period ended September 30, 2007:

	For the Three Months Ended September 30												For the Nine Months Ended September 30
	2008			2007			Change			% Change			2008			2007			Change			% Change
	(In thousands, except percentages, net loss per share and weighted average shares)
Broadcast Revenue	$	7,093		$	7,508		$	(415	)		(5.5	)	$	22,856		$	21,297		$	1,559			7.3

Program, production & promotion		4,377			3,697			680			18.4			14,614			10,727			3,887			36.2
Selling, general & administrative		6,324			7,847			(1,523	)		(19.4	)		24,234			23,452			782			3.3
Impairment charge on broadcasting assets		18,263			—			18,263			—			18,263			—			18,263			—
Management agreement settlement		—			—			—			—			—			8,000			(8,000	)		—
Depreciation and amortization expense		1,042			1,005			37			3.7			3,123			2,852			271			9.5
Rent		657			604			53			8.8			2,030			1,837			193			10.5
Operating (loss)		(23,570	)		(5,645	)		(17,925	)		(317.5	)		(39,408	)		(25,571	)		(13,837	)		54.1
Interest income		7			85			(78	)		(91.8	)		33			118			(85	)		(72.0	)
Interest Expense		(6,894	)		(2,082	)		(4,812	)		231.1			(13,743	)		(6,314	)		(7,429	)		117.7
Gain on sale of assets		(283	)		—			(283	)		—			(483	)		454			(937	)		(206.4	)
Other income (expense), net		608			(14	)		622			(4442.9	)		716			202			514			254.5
(Loss) before income taxes		(30,132	)		(7,656	)		(22,476	)		293.6			(52,885	)		(31,111	)		(21,774	)		70.0
Income taxes		—			—			—			—			—			—			—			—
Net (loss)		(30,132	)		(7,656	)		(22,476	)		293.6			(52,885	)		(31,111	)		(21,774	)		70.0
Preferred dividend		(199	)		(185	)		(14	)		7.6			(786	)		(12,506	)		11,720			(93.7	)
Net loss available to common shareholders	$	(30,331	)	$	(7,841	)	$	(22,490	)		286.8		$	(53,671	)	$	(43,617	)	$	(10,054	)		23.0
Basic net (loss) per common share	$	(0.75	)	$	(0.19	)	$	(0.56	)				$	(1.33	)	$	(1.24	)	$	(0.09	)

Basic shares used in earnings per share calculation		40,278,382			40,646,137									40,278,382			35,104,786

Program, production and promotion expenses

Program, production and promotion expense was $4.4 million in the three month period ended September 30, 2008, as compared to $3.7 million in the three month period ended September 30, 2007, an increase of $0.7 million or 18.4%. The increase in program, production and promotion expenses is primarily driven by an increase in syndicated films expense of $0.6 million or 101%, and an increase in satellite time expense of $165,000, or 23.6%.

Program, production and promotion expense was $14.6 million in the nine month period ended September 30, 2008, as compared to $10.7 million in the nine month period ended September 30, 2007, an increase of $3.9 million, or 36.2%. The increase in program, production and promotion expenses is driven by an increase in syndicated films expense of $2.9 million, or 184%, an increase in license fees of $0.4 million, or 11.6%,, and satellite time expense of $0.5 million, or 22.5%.

Table of Contents

Selling, general and administrative

Selling, general and administrative expense was $6.3 million in the three month period ended September 30, 2008, as compared to $7.8 million in the three month period ended September 30, 2007, a decrease of $1.5 million, or 19.4%. Our general and administrative expenses have decreased $1.5 million, or 21.4%, and selling expenses $53,000, or 5.4%. Contributing to the decrease in general and administrative expenses were decreases in labor costs of $0.9 million, consulting fees of $155,000, and bad debt expense of $144,000. The decreases were partially offset by an increase in legal and accounting fees of $185,000. The increase relates to the continuing negotiations with lenders as well as pursuing potential investors to raise additional capital.

Selling, general and administrative expense was $24.2 million in the nine month period ended September 30, 2008, as compared to $23.4 million in the nine month period ended September 30, 2007, an increase of $0.8 million, or 3.3%. Our general and administrative expenses have increased $0.6 million, or 3.3%, and selling expenses $0.2 million. Contributing to the increase in general administrative expenses were increases in labor costs of $0.6 million; legal and accounting expense of $1.2 million and consulting fees $0.4 million, which were partially offset with reductions in JSA expense of $0.2 million and bad debt expense of $0.7 million. Labor costs for the nine month period ended September 3, 2008, include a charge of $1.2 million attributed to the severance agreement entered into by and between the Company and Larry Morton, former Chairman and CEO of Retro Programming Services, Inc., a wholly owned subsidiary of EMHC, and cost of additional executives hired in connection with the 2007 Merger transaction and becoming a publicly traded entity. The severance charge was partially offset by a reduction in Share Based Compensation of $0.9 million due in part to the forfeiture of non-vested stock options which had been previously granted to Larry Morton. (See footnote disclosure elsewhere in this report.) The increase in selling expenses is attributed to increase in agency commission expense as a result of increase in revenues derived from sales to agencies, to both national and local advertisers, and expenses associated with Nielsen ratings.

Impairment Charge on Broadcasting Assets

We recorded an impairment charge of approximately $18.3 million during the three month period ended September 30, 2008, which included an impairment to the carrying values of our broadcast licenses of $18.1 million, related to 11 of our television stations; and an impairment to the carrying values of our tangible broadcast assets of $0.2 million, related to 2 of our television stations. There was no impairment charge in the three or nine month period ended September 30, 2007.

Management Settlement Agreement

Management settlement agreement expense in 2007 relates to the cancellation of a management agreement between the Company and Arkansas Media in exchange for the following: (i) payment to Arkansas Media of (a) $3,200,000 in cash, and (b) shares of common stock valued at $4,800,000.

Depreciation and Amortization

Depreciation was $1.0 million in the three month period ended September 30, 2008, as compared to $1.0 million in the three month period ended September 30, 2007. There was no amortization expense in the three month period ended September 30 of either 2008 or 2007.

Depreciation and amortization was $3.1 million in the nine month period ended September 30, 2008, as compared to $2.9 million in the nine month period ended September 30, 2007. Amortization expense was $40,485 for the nine month period ended September 30, 2007. There was no amortization expense for the same period in 2008.

Rent

Rent expense is predominantly attributable to the cost of renting transmission tower sites as well as some station sales office premises.

Rent expense was $0.66 million in the three month period ended September 30, 2008, as compared to $0.60 million in the three month period ended September 30, 2007, an increase of $0.06 million or 8.8%. An increase in tower rent expense was the primary factor.

Rent expense was $2.0 million in the nine month period ended September 30, 2008, as compared to $1.8 million in the nine month period ended September 30, 2007, an increase of $0.2 million, or 10.5%. An increase in tower rent expense was the primary factor.

Interest Expense, net

Interest expense, net of interest income, was $6.9 million in the three month period ended September 30, 2008, as compared to $2.0 million in the three month period ended September 30, 2007, an increase of $4.9 million, or 245%. This increase is primarily attributable to $4.7 million of interest cost on the loan of $25 million from Henry Luken (as further described in note 4 to the financial statements herein) , and a higher average outstanding balance of the senior credit facility in 2008, but offset somewhat by a weighted average interest rate that was approximately 100 basis points lower than in 2007.

Table of Contents

Interest expense, net of interest income, was $13.7 million in the nine month period ended September 30, 2008, as compared to $6.2 million in the nine month period ended September 30, 2007, an increase of $7.5 million, or 121%. This increase is primarily attributable to $4.7 million of interest expense on the loan of $25 million from Henry Luken (as further described in note 4 to the financial statements herein), fees paid to lenders in connection with the renegotiation of the senior credit facility in February 2008 and subsequent amendments and forbearance agreements in March, April and June, increases to the applicable margin interest rates in 2008 and a higher average outstanding balance of the senior credit facility in 2008. The combined average interest rates on the Company’s senior credit facility were 14.6% and 13.3% for the nine months ended September 30, 2008 and 2007, respectively.

Loss on sale of assets

In the three months ended September 30, 2008 the Company recognized a loss of $0.28 million associated with the loss of escrow funds originally intended to be used in the acquisition of various television stations in New York. There were no sales or disposals of assets in the three months ended September 30, 2007.

During the nine months ended September 30, 2008, the Company recognized a loss of $0.20 million associated with the disposal of the Spanish language news division and a loss of $0.28 million associated with the loss of escrow funds originally intended to be used in the acquisition of various television stations in New York. The gain on sale of assets was $0.45 million in the nine month period ended September 30, 2007 which included gains from the sale of several low power television stations located both in Idaho and in Central Arkansas.

Other income, net

Other income, net was approximately $0.6 million for the three months ended September 30, 2008 as compared to a loss of approximately $14,000 for the three months ended September 30, 2007, an increase of $0.6 million. The increase consists primarily of fees received from Luken Communications per the RTN sales agreement of $0.5 million.

Other income, net was approximately $0.7 million for the nine months ended September 30, 2008 as compared to approximately $0.2 million for the nine months ended September 30, 2007, an increase of $0.5 million. The increase consists primarily of fees received from Luken Communications per the RTN sales agreement of $0.5 million.

Liquidity and Capital Resources

General

The following table and discussion presents data the Company believes is helpful in evaluating its liquidity and capital resources:

	As of
	September 30, 2008		December 31, 2007
	(In thousands)
Cash and cash equivalents	$	762	$	634
Long term debt including current portion and lines of credit	$	91,858	$	77,410
Available credit under senior credit agreement	$	─0─	$	─0─

The Company’s existing capital resources are not sufficient to fund its operations. If the Company is unable to obtain adequate additional sources of capital immediately it will need to cease all or a portion of its operations, seek protection under U.S. bankruptcy laws and regulations, engage in a restructuring or undertake a combination of these and other actions. The Company has explored numerous sources of capital and has been unsuccesful in identifying and securing such capital to date. The Company is continuing to pursue potential transactions that may supply it with capital necessary to meet its current requirements. As of the date of this report no such transaction is imminent. If the Company is able to successfully consummate a transaction, such transaction may result in substantial dilution to the Company’s existing security holders and/or the incurrence of substantial indebtedness on relatively expensive terms. The terms of any such transaction would also likely involve covenants that serve to substantially restrict the operations of the Company and its management and could result in a change of control of the Company.

Table of Contents

On April 28, 2008, the Company entered into a second amendment (“Second Amendment”) to its Credit Agreement which had been previously amended on March 19, 2008 as noted above. Under the terms of the Second Amendment, the lender group agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and any other defaults or events of default under the Credit Agreement other than any specified defaults described in the Second Amendment (which include, but are not limited to, breaches of certain affirmative and negative covenants, among others) through the earlier of (a) May 5, 2008 and (b) the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to consummate a proposed financing with certain investors. The Second Amendment also provided for the lender group to make additional loans to the Company in an amount not to exceed $5.5 million (which includes additional loans funded pursuant to the First Amendment) and increased the applicable margins on LIBOR loans and base rate loans to 12.0% and 11.0% respectively.

On June 24, 2008, the Company entered into a third amendment (“Third Amendment”) to the Credit Agreement. Under the terms of the Third Amendment, the lender group has agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and certain other defaults described in the Third Amendment through the earlier of (a) December 23, 2008 and (b) the date of occurrence of events of default or certain other events. Notwithstanding the foregoing, the lenders may terminate the forbearance on and after September 15, 2008 in their sole discretion. The Third Amendment also provides for the lender group to make additional loans to the Company in an amount not to exceed $6.5 million, subject to certain conditions in the Third Amendment and the Lenders’ sole discretion. Additionally, the applicable margins on LIBOR loans and base rate loans were decreased to 10.0% and 9.0% respectively. The Company used a portion ($17.5 million) of the proceeds from the transactions with Luken Communications, LLC as described in Note 4 – Transactions with Luken Communications, LLC to pay down a portion of the credit facility. Following this pay down and after additional advances under the Term C facility, approximately $40.1 million remains outstanding under the credit facility as of September 30, 2008.

The principal ongoing uses of cash that affect the Company’s liquidity position include the following: the acquisition of and payments under syndicated programming contracts, capital and operational expenditures and interest payments on the Company’s debt. It should be noted that no principal is due on the existing senior credit facility (as refinanced in February 2008 - see below) until February 2011, except for mandatory principal payments from proceeds generated from the sale of any collateral assets through that period.

The Company currently has a working capital deficit of approximately $99.2 million.

Even with the refinanced credit facility, the additional funds provided by the amended credit facility and the proceeds from the transactions with Luken Communications, LLC as described in Note 4 to the accompanying unaudited condensed consolidated financial statements are not sufficient to meet all of the anticipated liquidity needs to continue operations of the Company for the next twelve months. Accordingly, the Company will have to raise additional capital or increase its debt immediately to continue operations. If the Company is unable to obtain additional funds when they are required or if the funds cannot be obtained on favorable terms, management may be required to liquidate substantially all available assets, restructure the Company or in the extreme event, cease operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Sources and Uses of Cash

	For the Nine Months
	Ended September 30,
	2008			2007
	(In thousands)
Net cash used by operating activities	$	(21,893	)	$	(22,706	)
Net cash provided (used) by investing activities		7,574			(12,572	)
Net cash provided by financing activities		14,447			36,064
Net increase in cash and cash equivalents	$	128		$	786

Table of Contents

Operating Activities

Net cash used in operating activities for the nine month periods ending September 30, 2008 and 2007 was $21.9 million and $22.7 million, respectively. The decrease in net cash used by operating activities of $0.8 million was due primarily to an increase in the net loss of $21.8 million, an increase in impairment of broadcasting assets, a decrease in management agreement settlement of $4.8 million, a decrease in restricted cash of $4.2 million, an increase in accounts payable and accrued expenses of $4.9 million, an increase in program broadcast rights of $5.3 million, an increase in program broadcast obligations of $5.0 million, and a decrease in deferred barter revenue of $2.8 million.

Investing Activities

Net cash provided by investing activities was $7.5 million in the nine month period ended September 30, 2008, a variance of $20.1 million compared to the nine month period ended September 30, 2007, when $12.6 million was used by investing activities. The variance was largely due to the acquisition of three low power television stations located in Oklahoma and Arkansas, including KLRA, the Univision affiliate in Little Rock, Arkansas in 2007, and an increase in amounts due to related parties and affiliates of $7.0 million.

Financing Activities

Net cash provided by financing activities was $14.4 million in the nine month period ended September 30, 2008, compared to $36.0 million in the nine month period ended September 30, 2007, a decrease of $21.6 million. The decrease in net cash provided by financing activities is explained by the Common Stock Private placement in June of 2007, at which time the Company received $9.0 million from investors, in addition to the net proceeds of the March 2007 merger transaction with Coconut Palm. As part of the Merger Transaction, the Company acquired the existing assets and liabilities of Coconut Palm, including operating cash of $22.8 million before paying down the balance of the senior credit facility in the amount of $17.45 million. In June 2008, the Company received $25 million in connection with certain transactions as described in the notes to condensed consolidated financial statements Note 4 – Transactions with Luken Communications, LLC. The Company used $17.5 million of the proceeds to pay down a portion of the outstanding balance in the senior credit facility.

Debt Instruments and Related Covenants

The Company’s Credit Facility is collateralized by substantially all of the assets, including real estate, of the Company and its subsidiaries. The Credit Facility contains certain restrictive provisions which include, but are not limited to, requiring the Company to achieve certain revenue and earnings goals, limiting the amount of annual capital investments, incur additional indebtedness, make certain acquisitions and investments, sell assets or make other restricted payments, including dividends (all are as defined in the loan agreement and subsequent amendments.) As of December 31, 2007, the Company was not in compliance with all covenants as required by the credit facility before its amendment and restatement on February 13, 2008. In connection with and as part of the amendment and restatement of the credit facility, the lenders waived and eliminated the covenant requirements as of December 31, 2007. As of September 30, 2008, the Company is subject to amended covenants as per the amended credit agreement.

On April 28, 2008, the Company entered into a second amendment (“Second Amendment”) to its Credit Agreement which had been previously amended on March 19, 2008 as noted above. Under the terms of the Second Amendment, the lender group agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and any other defaults or events of default under the Credit Agreement other than any specified defaults described in the Second Amendment (which include, but are not limited to, breaches of certain affirmative and negative covenants, among others) through the earlier of (a) May 5, 2008 and (b) the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to consummate a proposed financing with certain investors. The Second Amendment also provided for the lender group to make additional loans to the Company in an amount not to exceed $5.5 million (which includes additional loans funded pursuant to the First Amendment) and increased the applicable margins on LIBOR loans and base rate loans to 12.0% and 11.0% respectively.

Table of Contents

On June 24, 2008, the Company entered into a third amendment (“Third Amendment”) to the Credit Agreement. Under the terms of the Third Amendment, the lender group has agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and certain other defaults described in the Third Amendment through the earlier of (a) December 23, 2008 and (b) the date of occurrence of events of default or certain other events. Notwithstanding the foregoing, the lenders may terminate the forbearance on and after September 15, 2008 in their sole discretion. The Third Amendment also provides for the lender group to make additional loans to the Company in an amount not to exceed $6.5 million, subject to certain conditions in the Third Amendment and the Lenders’ sole discretion. Additionally, the applicable margins on LIBOR loans and base rate loans were decreased to 10.0% and 9.0% respectively. The Company used a portion ($17.5 million) of the proceeds from the transactions with Luken Communications, LLC as described in Note 4 – Transactions with Luken Communications, LLC to pay down a portion of the credit facility. Following this pay down and after additional advances under the Term C facility, approximately $40.1 million remains outstanding under the credit facility as of September 30, 2008.

As of September 30, 2008, the applicable margins for base rate advances and LIBOR advances under the revolver component of the Credit Facility were 10.0% and 9.0%, respectively. The amount outstanding under the credit facility as of September 30, 2008 was $40.1 million, from its term loans B and C facilities. At September 30, 2008, approximately $4.9 million was available to borrow under the term loan C component of the credit facility subject to certain conditions in the Third Amendment and the lenders sole discretion.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the appropriate application of certain accounting policies, many of which require the Company to make estimates and assumptions about future events and their impact on amounts reported in the Company’s consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from the Company’s estimates. Such differences may be material to the consolidated financial statements.

The Company believes its application of accounting policies, and the estimates inherently required therein, are reasonable.

These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, the Company has found its application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

The Securities and Exchange Commission has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operation, and which require the company to make its most difficult and subjective judgments, often as the result of the need to make estimates of matters that are inherently uncertain. Our critical accounting policies and estimates include the estimates used to determine the recoverability of indefinite-lived assets, including goodwill, the recoverability of long-lived tangible assets, the value of television broadcast rights, the amount of allowance of doubtful accounts, the existence and accounting for variable interest entities and the amount of stock-based compensation. For a detailed discussion of our critical accounting policies and estimates, please refer to our 2007 audited financial statements as reported in our Form 10-K/A filed on April 1, 2008 with the Securities and Exchange Commission. There have been no material changes in the application of our critical accounting policies and estimates subsequent to that report.

Recent Accounting Pronouncements

Refer to Note 3 of our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements, including our expected date of adoption and effects on results of operations and financial position.

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. The Company undertakes no obligation to update such forward-looking statements to reflect subsequent events or circumstances, except as required by law.

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

The Company is exposed to market risk from changes in domestic and international interest rates (i.e. prime and LIBOR). This market risk represents the risk of loss that may impact the financial position, results of operations and/or cash flows of the Company due to adverse changes in interest rates. This exposure is directly related to our normal funding activities. The Company does not use financial instruments for trading and, as of September 30, 2008, was not a party to any interest-rate derivative agreements.

Interest Rates

At September 30, 2008, the entire outstanding balance under our credit agreement, approximately 44% of the Company’s total outstanding debt (credit agreement, lines of credit, asset purchase loans, real estate mortgage, etc.) bears interest at variable rates. The fair value of the Company’s fixed rate debt is estimated based on current rates offered to the Company for debt of similar terms and maturities and is not estimated to vary materially from its carrying value.

Based on amounts outstanding at September 30, 2008, if the interest rate on the Company’s variable debt were to increase by 1.0%, its annual interest expense would be higher by approximately $.48 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation and Disclosure of Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control system is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (U.S. GAAP).

The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on its consolidated financial statements.

The Company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of December 31, 2007. Based on this evaluation Management identified and reported in the December 31, 2007 10-K/A, filed April 1, 2008 a material weakness in the Company's internal control over financial reporting as of December 31, 2007 relating to effective internal controls over the preparation, review, and approval surrounding certain account reconciliations, journal entries and accruals; including and related to analysis and evidence of management review. As result of this material weakness, management concluded that the disclosure controls and procedures were not effective as of December 31, 2007.

During 2008, the Company has taken and will continue to take actions to remediate the material weakness discussed above and it is continuing to assess additional controls that may be required to substantially reduce the risk of similar material weakness occurring in the future. The Company is in the process of establishing more robust reconciliation and review procedures and has required its accounting managers and supervisors to adequately review all reconciliations, journal entries and accruals and to provide evidence of such review and analysis.

As part of its fiscal 2008 assessment of internal control over financial reporting, management will conduct sufficient testing and evaluation of the controls being implemented as part of this remediation plan to ascertain that they operate effectively. While the Company has taken measures to remediate the material weakness and strengthen its internal control over financial reporting, these steps may not be adequate to fully remediate the material weakness, and additional measures may be required. The effectiveness of this remediation measures will not be fully known until the Company completes its annual evaluation of the effectiveness of its internal control over financial reporting for the year ending December 31, 2008. Therefore, management has concluded that it can not assert that the control deficiencies related to the reported material weakness have been effectively remediated.

Procedures were undertaken so that management could conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements contained in this filing.

Changes in Internal Control Over Financial Reporting

During the first nine months of 2008, other than discussed above, there has been no change in the Company’s internal control over financial reporting that materially affect or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II – OTHER INFORMATION

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

Sale of Stock Warrants

On June 24, 2008, the Company sold warrants to Luken Communications, LLC to purchase 8,050,000 shares of the Company’s common stock at an exercise price of $1.10 per share, exercisable through September 7, 2009. The purchase price for the warrants was $1.5 million. In the event the warrants are exercised, the investors’ beneficial ownership in the Company would increase from approximately 17% to approximately 30%. A portion of the proceeds from the sale of warrants were used for working capital purposes.

In accordance with the Warrants Purchase Agreement, as soon as practicable after the 180^th day after June 24, 2008, the Company shall use commercially reasonable efforts to file a registration statement (on Form S-3 if eligible, or Form S-1 if not eligible) covering the resale of the underlying securities by the Investor and use its commercially reasonable efforts to (i) respond promptly to all SEC requests for information and filings and (ii) cause such registration statement to become effective as soon as possible.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

On April 28, 2008, the Company entered into a Second Amendment to the Credit Agreement. The credit agreement had been previously amended on March 19, 2008. Under the terms of the two amendments, the lenders agreed to forbear from exercising certain of their rights and remedies with respect to the Company’s existing defaults through the earlier of May 5, 2008 and the date of occurrence of certain events or by which certain events have failed to occur, including the Company’s failure to consummate a proposed financing with certain investors.

On June 24, 2008, the Company entered into a third amendment (“Third Amendment”) to its Third Amended and Restated Credit Agreement (“Credit Agreement”). Under the terms of the Third Amendment, the lender group has agreed to forbear from exercising certain of its rights and remedies with respect to existing defaults and certain other defaults described in the Third Amendment through the earlier of (a) December 23, 2008 and (b) the date of occurrence of events of default or certain other events. Notwithstanding the foregoing, the lenders may terminate the forbearance on and after September 15, 2008 in their sole discretion. The Third Amendment also provides for the lender group to make additional loans to the Company in an amount not to exceed $6.5 million, subject to certain conditions in the Third Amendment and the Lenders’ sole discretion. Additionally, the applicable margins on LIBOR loans and base rate loans were decreased to 10.0% and 9.0% respectively.

ITEM 6. EXHIBITS

Exhibits

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Table of Contents

SIGNATURES

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

	EQUITY MEDIA HOLDINGS CORPORATION

Date: November 19, 2008	By:	/s/ John Oxendine
		Chief Executive Officer
		(principal executive officer)

Date: November 19, 2008	By:	/s/ Patrick Doran
		Chief Financial Officer
		(principal financial and accounting officer)

Table of Contents

EXHIBIT INDEX

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Equity Media Holdings CORP 10-Q