GRANITE BROADCASTING CORPORATION

Form 10-Q

Table of Contents

			Page
PART I		FINANCIAL INFORMATION	3

	Item 1.	Financial Statements	3
		Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004	3
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)	4
		Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended September 30, 2005 (unaudited)	5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (unaudited)	6
		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4.	Controls and Procedures	35

PART II		OTHER INFORMATION	36

	Item 4.	Submission of Matters to a Vote of Security Holders	36
	Item 5.	Other Information	36
	Item 6.	Exhibits	36

SIGNATURES			37

Granite Broadcasting Corporation is a Delaware corporation. As used in this Quarterly Report on Form 10-Q and unless the context otherwise requires, (1) ”Granite,” the “Company,” “we,” “us” and “our” refer to Granite Broadcasting Corporation, together with its direct and indirect subsidiaries, and (2) ”Malara Broadcast Group” and “Malara” refer to Malara Broadcast Group, Inc., together with its direct and indirect subsidiaries. Our principal executive offices are located at 767 Third Avenue, 34th Floor, New York, NY 10017, and our telephone number at that address is (212) 826-2530. Our web site is located at http://www.granitetv.com. The information on our web site is not part of this report.

As of March 8, 2005, we have shared services agreements and advertising representation agreements (which we generally refer to as local service agreements) relating to the two television stations owned by Malara Broadcast Group, but do not own any of the equity interests in Malara Broadcast Group. For a description of the relationship between us and Malara Broadcast Group, see Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments.”

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GRANITE BROADCASTING CORPORATION

CONSOLIDATED BALANCE SHEETS

	September30,			December 31,
	2005			2004
	(Unaudited)
Assets

Current assets:
Cash and cash equivalents (Excludes $24,997,500 of restricted cash equivalents at September 30, 2005, which is shown separately below.)	$	21,977,027		$	60,858,710
Marketable securities, at fair value	—			5,603,500
Accounts receivable, less allowance for doubtful accounts ($657,840 at September 30, 2005 and $896,465 at December 31, 2004)	19,806,142			20,551,203
Film contract rights	3,903,733			3,776,749
Other current assets	3,527,176			3,176,834
Assets held for sale	148,255,779			158,142,996
Total current assets	197,469,857			252,109,992

Restricted cash equivalents	24,997,500			—
Property and equipment, net	41,899,134			37,229,555
Film contract rights	84,711			157,842
Other non current assets	4,822,216			8,384,731
Deferred financing fees, less accumulated amortization ($3,718,346 at September 30, 2005 and $1,989,038 at December 31, 2004)	12,273,173			11,760,080
Goodwill, net	50,571,645			28,937,539
Broadcast licenses, net	45,403,394			37,979,394
Network affiliations, net	74,701,378			53,370,047
Total assets	$	452,223,008		$	429,929,180

Liabilities and stockholders’ deficit

Current liabilities:
Accounts payable	$	910,811		$	1,063,782
Accrued interest	13,162,500			3,290,625
Other accrued liabilities	5,328,630			6,277,190
Film contract rights payable	5,039,419			5,013,574
Current portion of long-term debt	2,800,000			—
Other current liabilities	2,686,666			1,133,678
Liabilities held for sale	36,407,836			46,056,768
Total current liabilities	66,335,862			62,835,617

Long-term debt, less current portion	451,842,181			400,791,298
Film contract rights payable	213,785			370,890
Deferred tax liability	22,308,602			19,347,007
Redeemable preferred stock	199,102,319			198,835,862
Accrued dividends on redeemable preferred stock	89,417,456			70,256,573
Other non current liabilities	10,162,900			9,582,081

Stockholders’ deficit:
Common stock: 41,000,000 shares authorized consisting of 1,000,000 shares of Class A Common Stock, $.01 par value, and 40,000,000 shares of Common Stock (Nonvoting), $.01 par value; 98,250 shares of Class A Common Stock and 19,480,142 shares of Common Stock (Nonvoting) (19,283,924 shares at December 31, 2004) issued and outstanding at September 30, 2005.	195,783			193,820
Additional paid-in capital	370,246			361,088
Accumulated other comprehensive loss	—			(12,914		)
Accumulated deficit	(386,765,326		)	(331,410,284		)
Less: Unearned compensation	(85,125		)	(346,183		)
Treasury stock, at cost	(875,675		)	(875,675		)
Total stockholders’ deficit	(387,160,097		)	(332,090,148		)
Total liabilities and stockholders’ deficit	$	452,223,008		$	429,929,180

See accompanying notes.

GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004

Net revenues	$	20,823,020		$	19,436,884		$	61,701,433		$	57,329,892
Operating expenses:
Direct operating expenses (exclusive of depreciation and amortization expenses shown separately below)	8,982,974			8,302,260			26,300,818			24,649,637
Selling, general and administrative expenses (exclusive of depreciation and amortization expenses shown separately below)	6,459,081			5,871,748			18,358,601			16,944,595
Corporate expense (exclusive of depreciation expense shown separately below)	2,558,465			2,736,505			7,981,523			8,710,355
Depreciation	1,193,997			1,384,909			3,778,784			4,259,874
Amortization of intangible assets	843,231			606,474			2,344,232			1,819,431
Performance award expense	319,797			1,911,887			959,391			2,960,429
Corporate separation agreement expense	—			1,250,842			—			1,250,842
Non-cash compensation expense (1)	94,146			109,757			282,296			544,759

Operating income (loss)	371,329			(2,737,498		)	1,695,788			(3,810,030		)

Other expenses (income):
Interest expense	11,172,520			9,872,368			32,503,642			29,617,422
Interest income	(574,854		)	(349,410		)	(1,312,653		)	(865,949		)
Non-cash interest expense	1,008,879			956,920			2,942,798			2,968,628
Non-cash preferred stock dividend	6,386,961			6,386,961			19,160,883			19,160,883
Other	22,080			50,019			192,412			451,671

Loss from continuing operations before income taxes	(17,644,257		)	(19,654,356		)	(51,791,294		)	(55,142,685		)
Benefit for income taxes	(156,086		)	(4,959,263		)	(481,479		)	(9,636,927		)

Loss from continuing operations	(17,488,171		)	(14,695,093		)	(51,309,815		)	(45,505,758		)
Discontinued operations:
Loss from discontinued operations, net of taxes	(2,166,190		)	(5,307,377		)	(4,045,227		)	(7,612,147		)

Net loss	$	(19,654,361	)	$	(20,002,470	)	$	(55,355,042	)	$	(53,117,905	)

Basic and diluted net loss per share from continuing operations	$	(0.89	)	$	(0.76	)	$	(2.62	)	$	(2.35	)
Basic and diluted net loss per share from discontinued operations	$	(0.11	)	$	(0.27	)	$	(0.21	)	$	(0.39	)
Basic and diluted net loss per share	$	(1.00	)	$	(1.03	)	$	(2.83	)	$	(2.74	)

Weighted average common shares outstanding	19,578,392			19,381,124			19,552,211			19,360,569

(1) Allocation of non-cash compensation expense to other operating expenses:

Operating expense - Selling, general and administrative expenses	$	19,456	$	23,670	$	58,226	$	76,512
Corporate expense	74,690		86,087		224,070		468,247
Non-cash compensation expense	$	94,146	$	109,757	$	282,296	$	544,759

See accompanying notes.

GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
(Unaudited)

	Class A Common Stock		Common Stock (Nonvoting)		Additional Paid-in Capital			Other Comprehensive Income/(Loss)			Accumulated Deficit			Unearned Compensation			Treasury Stock			Total Stockholders’ Deficit

Balance at December 31, 2004	$	982	$	192,838	$	361,088		$	(12,914	)	$	(331,410,284	)	$	(346,183	)	$	(875,675	)	$	(332,090,148	)
Issuance of Common Stock (Nonvoting)			1,963		(1,963		)													—
Stock expense related to stock plans					18,383									111,873						130,256
Forfeiture of stock award under stock plans					(7,262		)							7,262						—
Discount on loans to officers														141,923						141,923
Net loss											(55,355,042		)							(55,355,042		)
Realized gain on investment								12,914												12,914
Comprehensive loss																				(55,342,128		)

Balance at September 30, 2005	$	982	$	194,801	$	370,246		$	—		$	(386,765,326	)	$	(85,125	)	$	(875,675	)	$	(387,160,097	)

See accompanying notes.

GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended September 30,
	2005			2004

Cash flows from operating activities:
Net loss	$	(55,355,042	)	$	(53,117,905	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	6,386,779			5,891,306
Depreciation	4,709,146			5,196,942
Performance award expense	959,391			2,960,429
Non-cash compensation expense	282,296			544,759
Non-cash interest expense	3,341,809			3,355,424
Non-cash preferred stock dividend	19,160,883			19,160,883
Deferred tax benefit	(481,479		)	(9,636,927		)
Change in assets and liabilities:
Decrease in accounts receivable	3,165,483			2,914,965
Increase in accrued liabilities	8,350,196			11,266,649
Decrease in accounts payable	(775,782		)	(1,574,763		)
WB affiliation payment	(1,261,714		)	(2,319,246		)
Decrease in income tax receivable	—			16,326,799
Decrease in film contract rights and other assets	7,926,034			2,383,268
Decrease in film contract rights payable and other liabilities	(7,960,282		)	(6,806,696		)
Net cash used in operating activities	(11,552,282		)	(3,454,113		)

Cash flows from investing activities:
Sales (purchases) of marketable securities and other investments	5,600,506			(6,593,327		)
Payment for acquisition of assets	(55,742,424		)	—
Purchase of U.S. Government Securities	(24,997,500		)	—
Capital expenditures	(2,755,698		)	(3,728,789		)
Net cash used in investing activities	(77,895,116		)	(10,322,116		)

Cash flows from financing activities:
Proceed from senior credit facility	53,500,000			—
Payment of senior credit facility	(691,884		)	—
Payment of deferred financing fees	(2,242,401		)	(226,212		)
Net cash provided by (used in) financing activities	50,565,715			(226,212		)

Net decrease in cash and cash equivalents	(38,881,683		)	(14,002,441		)
Cash and cash equivalents, beginning of period	60,858,710			90,213,995
Cash and cash equivalents, end of period	$	21,977,027		$	76,211,554

Supplemental information:
Cash paid for interest	$	22,096,374		$	17,440,313
Cash paid for income taxes	116,766			163,320
Non-cash capital expenditures	258,833			172,386

See accompanying notes.

GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 – Operations of the Company

The business operations of Granite Broadcasting Corporation and its wholly owned subsidiaries (the “Company”) consist of eight network affiliated television stations in the United States, consisting of four NBC-affiliated television stations, one ABC-affiliated station, one CBS-affiliated television station and two WB Network stations. The Company’s stations are located in New York, California, Michigan, Indiana, Illinois and Minnesota. Through various local service agreements (as fully discussed below), Granite Broadcasting Corporation provides advertising sales, promotion, administrative services and selected programming to two television stations owned by Malara Broadcast Group, Inc (“Malara Broadcast Group”).

As more fully discussed in Note 3, the Company completed the sale of its Fort Wayne, Indiana ABC affiliate, WPTA-TV, to Malara Broadcast Group and acquired the Fort Wayne, Indiana NBC affiliate, WISE-TV from New Vision Group, LLC in March 2005. Malara Broadcast Group also acquired KDLH-TV, the CBS affiliate serving Duluth, Minnesota from New Vision Group, LLC. The Company entered into a strategic arrangement with Malara Broadcast Group, under which the Company provides advertising sales, promotion and administrative services, and selected programming to WPTA-TV and KDLH-TV under local services agreements. Although the Company does not own Malara Broadcast Group or its television stations, the Company is deemed to be the primary beneficiary of Malara Broadcast Group as defined under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (“Interpretation 46”). As a result, Interpretation 46 requires the Company to consolidate Malara Broadcast Group’s financial position, results of operations and cash flows for the period ended September 30, 2005.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of a Senior Credit Facility (the “Malara Broadcast Group Senior Credit Facility”) consisting of two terms loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Term Loan A is secured by a letter of credit. To secure the reimbursement obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company pledged $25 million of U.S. Government Securities. The $25 million Malara Broadcast Group Term Loan B and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by the Company.

The Company anticipates having sufficient unrestricted cash on hand to make the December 1, 2005 interest payment on its
9 3/4 % Senior Secured Notes (the “Notes”). Absent changes to its capital structure and station ownership mix, the Company will not have enough liquidity to service its existing obligations over the next twelve months. In order to improve the Company’s existing liquidity position and to further the Company’s business strategy, the Company entered into separate definitive agreements to sell its two WB affiliates (as discussed in the following paragraph) and is currently exploring additional changes in its station ownership mix and the raising of additional capital. However, under its Indenture, the Company’s use of the net proceeds from the sale of assets is restricted. Of the net proceeds received in an asset sale, $5 million may be used for working capital purposes and the remainder must be used either:

• to make an investment in properties and assets that replace the properties and assets that were the subject of such asset sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto (“Replacement Assets”) or to finance, directly or indirectly, a Permitted Business Acquisition or enter into a definitive agreement to effectuate such acquisition; provided that (A) the primary purpose of such acquisition of Replacement Assets or Permitted Business Acquisition is to acquire, and there is acquired, a television station with a Big-4 (ABC, CBS, NBC or Fox) network affiliation agreement in place or the creation (through ownership by the Company and its Restricted Subsidiaries) of a “duopoly” in a market and (B) that the Company shall use all reasonable best efforts to promptly dispose of any other assets acquired in such acquisition or Permitted Business Acquisition (as such terms are defined in the Indenture); or

• to make an offer to all holders of the Notes to purchase such amount of the Notes less any such net proceeds used to acquire qualifying Replacement Assets or to make a Permitted Business Acquisition.

On September 8, 2005, the Company entered into separate definitive agreements to sell its two WB affiliates, KBWB-TV serving San Francisco, California and WDWB-TV serving Detroit, Michigan to affiliates of AM Media Holdings, LLC. The agreements contain covenants by the Company not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by the Company for the sale of the assets of KBWB-TV is

$72,500,000, before closing adjustments, which is payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by the Company for the sale of the assets of WDWB-TV is $87,500,000, before closing adjustments which is payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively.

The Company anticipates that it will retain approximately $30 million of the aggregate proceeds from the transactions to be used for working capital purposes, consisting of $5 million per asset sale as permitted under the Company’s Indenture and $10 million for each covenant not to compete. The remaining net proceeds, after closing adjustments, will be used to make investments in property or assets that replace the property and assets that were the subject of such asset sale and/or make an offer to all of the holders of the Notes. The Company expects both transactions, each of which is subject to customary closing conditions, to close in the fourth quarter of 2005. The Company continues to explore the raising of additional capital and changes in its station ownership mix.

Assuming the Company is successful in selling the KBWB-TV and WDWB-TV and / or raising additional capital, it believes that the available proceeds together with the cash and cash equivalents on hand and internally generated funds from operations will be sufficient to satisfy our cash requirements for our existing operations for the next twelve months. However, a lack of liquidity would have a material adverse effect on the Company’s business strategy and therefore affect its ability to continue as a going concern. The 2005 quarterly financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of September 30, 2005, the Company had $21,977,000 of cash and cash equivalents on hand, which excluded $24,997,500 in U.S. Government Securities which are pledged to secure the reimbursement obligations in the event of a draw on the letter of credit that serves as collateral for the Term Loan A under Malara Broadcast Group’s Senior Credit Facility and is restricted and not available for working capital or any other purposes. To the extent that principal payments are made on the Term Loan A, the letter of credit shall be proportionately reduced and the Company shall be permitted to proportionately reduce the amount of pledged U.S. Government Securities.

Note 2 – Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited consolidated financial statements include the accounts of the Company and have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. Operating results for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ended December 31, 2005. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2004, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. In the opinion of management, all adjustments of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods, have been made.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the accounts of independently-owned Malara Broadcast Group where it is deemed that the Company is the primary beneficiary of a variable interest entity in accordance with Interpretation 46. All intercompany account balances and transactions have been eliminated in consolidation.

Malara Broadcast Group is included in these consolidated financial statements because the Company is deemed to be the primary beneficiary of Malara Broadcast Group as defined by Interpretation 46 as a result of (i) the Company’s guarantee of the obligations incurred under Malara Broadcast Group’s Senior Secured Credit Facility, (ii) local service agreements the Company has with Malara Broadcast Group and (iii) put or call option agreements the Company has with Malara Broadcast Group to acquire all of the assets and assume the liabilities of each Malara Broadcast Group television station, subject to approval by the Federal Communications Commission (“FCC”) (see Note 3 for further details on the aforementioned).

Discontinued Operations

the accompanying balance sheets and their operations have been recorded as discontinued operations. Discontinued operations have not been segregated in the consolidated statement of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and statements of operations. Their financial position and results of operations have been reclassified accordingly for all periods presented. (See Note 7 Discontinued Operations, for further details.)

Reclassification

Certain balances in the prior period have been reclassified to conform to the current period’s presentation.

Restricted Cash Equivalents

The $23.5 million Term Loan A under the Malara Broadcast Group Senior Credit Facility is secured by a letter of credit. To secure the reimbursement obligations in the event of a draw on the letter of credit and pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company pledged $25 million of U.S. Government Securities, which are not available for working capital or any other purposes and held in escrow. To the extent that principal payments are made on the Term Loan A, the letter of credit shall be proportionately reduced and the Company shall be permitted to proportionately reduce the amount of the pledged U.S. Government Securities. The Company anticipates payments of principal on the Term Loan A to commence in 2007. As of September 30, 2005, the restricted U.S. Government Securities totaled $24,997,500.

Cash Equivalents and Investments in Marketable Securities

All highly liquid investments with a maturity of ninety days or less from the date of purchase are considered cash equivalents. Marketable securities, if applicable, are classified as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Marketable securities are carried at fair market value based on current market quotes. Any unrealized gains and losses are reported in stockholders’ equity as a separate component of other comprehensive income / (loss) until realized. Gains and losses on securities sold are based on the specific identification method. The Company does not hold securities for speculative or trading purposes. As of September 30, 2005, the Company’s did not have any marketable securities. During the nine months ended September 30, 2005, the Company recorded a realized gain of approximately $12,914.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, by asset classifications, ranging from a period of 3 to 40 years. Effective January 1, 2005, the Company revised its estimated useful lives of certain asset classifications which were being depreciated on a straight-line basis ranging from 3 to 35 years in periods prior to January 1, 2005. Maintenance and repairs are charged to operations as incurred.

Stock-Based Compensation

The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, or Statement 148, to require disclosure in the summary of accounting policies of the effects of an entity’s accounting policy with respect to stock-based compensation on reported net income / (loss) and earnings per share in annual and interim financial statements.

The Company accounts for stock option grants under the recognition and measurement principles of Accounting Principles Board (“APB”) No 25, Accounting for Stock Issued to Employees and related interpretations. Under APB No. 25, because the exercise price of the Company’s stock options equals the market price (fair value) of the underlying stock on the date of grant, no compensation expense is recorded.

The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation, as amended by Statement 148, to stock-based compensation for the three and nine months ended September 30, 2005 and 2004 which may not be representative of the impact in future years.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net loss attributable to common shareholders, as reported	$	(19,654,361	)	$	(20,002,470	)	$	(55,355,042	)	$	(53,117,905	)
Add: pro forma compensation expense	104,355			332,730			313,065			1,048,168
Less: compensation expense, as reported	9,500			11,167			28,500			35,167
Pro forma net loss attributable to common shareholders	$	(19,749,216	)	$	(20,324,033	)	$	(55,639,607	)	$	(54,130,906	)

Basic and diluted net loss per share, as reported	$	(1.00	)	$	(1.03	)	$	(2.83	)	$	(2.74	)
Pro forma compensation expense	(0.01		)	(0.02		)	(0.02		)	(0.05		)
Pro forma basic and diluted net loss per share	$	(1.01	)	$	(1.05	)	$	(2.85	)	$	(2.79	)

The fair value for each option grant was estimated at the date of grant using the Black-Scholes options pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimate.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB) issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections – a replacement of APB No. 20 and FASB Statement No. 3, or Statement 154. Statement 154 changes the requirements of accounting for and reporting a change in accounting principle and applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement, in the event that the accounting pronouncement does not include specific transition provisions. Statement 154 requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable. Statement 154 also requires that a change in the method of depreciation, amortization or depletion of long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance contained in APB Opinion No. 20, Accounting Changes for reporting the correction of an error was carried forward in Statement 154 without change. Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

employee services in exchange for (i) equity instruments of the enterprise or (ii) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value expense of stock options or other equity based compensation issued to employees in the statement of operations. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, or APB 25. The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial position, results of operations or cash flows.

Statement 123(R) is effective for public companies that do not file as small business issuers as of the beginning of the first annual reporting period that begins after June 15, 2005. All public companies must use either the modified prospective or modified retrospective transition method. Early adoption of Statement 123(R) for interim or annual periods for which financial statements or interim reports have not been issued is encouraged but not required. The Company has not fully evaluated the impact, if any, of adopting this pronouncement which must be adopted in the first quarter of 2006, but it believes that the adoption of this Statement will not have a significant accounting impact. See “Stock-Based Compensation” for the pro forma impact if compensation costs for the Company’s stock option plans had been determined based on the fair value method set forth in Statement 123(R).

Note 3 – Acquisitions and Dispositions

On March 7, 2005, the Company completed the sale of its Fort Wayne, Indiana ABC affiliate, WPTA-TV to a subsidiary of Malara Broadcast Group Inc. (“Malara Broadcast Group”) for approximately $45.4 million, pursuant to the terms and conditions of an asset purchase agreement, dated April 23, 2004. In addition, on March 8, 2005, the Company completed its purchase of WISE-TV, the NBC affiliate serving Fort Wayne from New Vision Group, LLC, or New Vision Television, for approximately $43.5 million, pursuant to the terms and conditions of a stock purchase agreement, dated April 23, 2004.

In addition, another subsidiary of Malara Broadcast Group acquired CBS affiliate KDLH-TV, Duluth, Minnesota from New Vision Television on March 8, 2005 for approximately $9.5 million, pursuant to the terms and conditions of an asset purchase agreement, dated April 23, 2004.

On March 8, 2005, the Company entered into a strategic arrangement with Malara Broadcast Group, under which the Company provides advertising sales, promotion and administrative services, and selected programming to WPTA-TV and KDLH-TV in return for certain fees that will be paid by Malara Broadcast Group to the Company. The fees payable to the Company will be paid after current debt service as well as certain other expenses Malara Broadcast Group incurs directly are satisfied. During the three and nine months ended September 30, 2005, Malara Broadcast Group paid the Company approximately $996,000 and $1,796,000, respectively owed under the strategic arrangements between both company’s. As of September 30, 2005, the total amount owed to the Company from Malara Broadcast Group totaled approximately $9,998,000.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of the Malara Broadcast Group Senior Credit Facility (see Note 6).

The Company does not own Malara Broadcast Group or its television stations. However, as a result of the Company’s guarantee of the obligations incurred under Malara Broadcast Group’s senior secured credit facility with respect to the Term Loan B and the revolving loan and due to its arrangements under the local service agreements and put or call option agreements, under Interpretation 46, the Company is required to consolidate Malara Broadcast Group’s financial position, results of operations and cash flows. In addition, in accordance with the provisions of Interpretation 46, the Company did not account for the sale of the assets of WPTA-TV and no gain there from was recognized in the consolidated statements of operations. Additionally, the Company did not apply the provisions of purchase accounting to Malara Broadcast Group’s acquisition of WPTA-TV.

In May 2004, an application was filed with the FCC, seeking consent to assign the license of television station KDLH to a subsidiary of Malara Broadcast Group. A petition to deny the application was filed with the FCC jointly by two competing television station licensees in the Duluth market asserting that the Company will have a prohibited ownership interest in KDLH by virtue of the operating arrangement between Malara Broadcast Group and the Company. The FCC’s Media Bureau (“Bureau”) denied the petition and granted the assignment application in December 2004. In January 2005, the petitioning broadcasters filed an application for review seeking Commission-level review of the Bureau’s decision. Malara Broadcast Group filed an opposition to the application for review, and the petitioning broadcasters filed a response to that opposition.

The FCC has not yet ruled on the application for review. Although the Company believes that the application for review is without merit and anticipates that the FCC will affirm the grant of the assignment application for KDLH, it is not possible to predict how the FCC will rule on the application for review. It also is not possible to predict any remedial action or possible sanction that may be imposed by the FCC in the event that it grants the application for review. An FCC grant of the application for review ultimately could result in a reformation or rescission of these agreements, the assignment of the KDLH license back to New Vision Group, LLC, or a sale by Malara Broadcast Group of its ownership of KDLH.

Each of the acquisitions listed below was consummated during the three months ended March 31, 2005. The Company’s acquisition of WISE and Malara Broadcast Group’s acquisition of KDLH were accounted for under the purchase method of accounting. The consolidated financial statements continue to include the operating results of WPTA as well as the operating results of WISE and KDLH from the date of consummation of the acquisition. In accordance with the provisions of Interpretation 46, the Company did not account for the sale of the assets of WPTA.

Station	Network Affiliation	Market	Date Acquired	Acquiring Company
WISE	NBC	Fort Wayne, Indiana	March 8, 2005	Granite Broadcast Corporation
WPTA (1), (2)	ABC	Fort Wayne, Indiana	March 7, 2005	Malara Broadcast Group
KDLH (1)	CBS	Duluth, Minnesota	March 8, 2005	Malara Broadcast Group

(1) Operations under local service agreements, whereby, the Company provides advertising, sales, promotions, administrative services and selected programming services to Malara Broadcast Group television stations in return for certain fees that will be paid to the Company by Malara Broadcast Group.

(2) In accordance with Interpretation 46, the Company did not account for the sale of the assets of WPTA-TV and no gain there from was recognized in the consolidated statements of operations. In addition, the Company did not apply the provisions of purchase accounting to Malara Broadcast Group’s acquisition of WPTA-TV.

WISE

On March 8, 2005, the Company acquired the stock of WISE-TV from New Vision Group, LLC for $43.5 million plus approximately $2,400,000 of transactions costs. The acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price was allocated to liabilities acquired based on their estimated fair value on the acquisition date.

The following table summarizes the allocation of the purchase price of WISE-TV on March 8, 2005. The Company is currently obtaining a third-party valuation of certain acquired intangible assets and therefore the allocation below is preliminary and estimated and is subject to change once the third-party valuation is completed. In addition, net liabilities acquired are subject to future adjustments and therefore the amount below is preliminary and estimated and subject to change.

	Value at
	March 8, 2005
Purchase Price	$	45,879,000
Net Liabilities Acquired	1,586,000
FCC License (indefinite lived)	(5,424,000		)
Network Affiliation (estimated useful life, 25 years)	(20,797,000		)
Goodwill (indefinite lived)	$	21,244,000

KDLH

On March 8, 2005, Malara Broadcast Group acquired substantially all of the assets of KDLH-TV from New Vision Group, LLC for $9.5 million plus approximately $360,000 of transactions costs. The acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price was allocated to assets acquired based on their estimated fair value on the acquisition date.

The following table summarizes the allocation of the purchase price of KDLH-TV acquired on March 8, 2005. Malara Broadcast Group is currently obtaining a third-party valuation of certain acquired intangible assets and therefore the allocation below is preliminary and estimated and is subject to change once the third-party valuation is completed. In addition, net assets acquired are subject to future adjustments and therefore the amount below is preliminary and estimated and subject to change.

	Value at
	March 8, 2005
Purchase Price	$	9,864,000
Net Assets Acquired	(4,639,000		)
FCC License (indefinite lived)	(2,000,000		)
Network Affiliation (estimated useful life, 25 years)	(2,879,000		)
Goodwill (indefinite lived)	$	346,000

The following unaudited pro forma information from continuing operations for the three months ended September 30, 2004 and nine months ended September 30, 2005 and 2004 has been presented as if the Company’s acquisition of WISE-TV and Malara Broadcast Group’s acquisition of KDLH-TV had occurred on January 1, of each year:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	Actual			Pro Forma			Pro Forma			Pro Forma
Net Revenues	$	20,823,000		$	26,754,000		$	63,553,000		$	66,733,000
Operating Expenses	20,452,000			25,118,000			61,775,000			69,146,000
Income (loss) from Operations	371,000			1,636,000			1,778,000			(2,413,000		)
Other Expenses	18,016,000			18,286,000			54,412,000			55,131,000
Loss before taxes	(17,645,000		)	(16,650,000		)	(52,634,000		)	(57,544,000		)
Benefit for income taxes	(156,000		)	(4,949,000		)	(482,000		)	(9,627,000		)
Net loss attributable to common shareholders	$	(17,489,000	)	$	(11,701,000	)	$	(52,152,000	)	$	(47,917,000	)

Basic and diluted net loss per share	$	(0.89	)	$	(0.60	)	$	(2.67	)	$	(2.47	)

Weighted average common shares outstanding	19,578,392			19,381,124			19,552,211			19,360,569

The selected unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of

results of operations in the future periods or results that would have been achieved had the Company’s acquisition of WISE-TV and Malara Broadcast Group’s acquisition of KDLH-TV occurred during the specified periods

Note 4 – Related Parties

In February 2003, the Compensation Committee recommended, and the Board of Directors approved, an incentive award of $3,286,065 to each of W. Don Cornwell and Stuart J Beck to be paid, subject to vesting terms, only upon the occurrence of the refinancing with a maturity of at least two years, of the senior debt due April 15, 2004. On December 22, 2003, the Company issued $405 million aggregate principal amount of 9 3/4 % Senior Secured Notes, the proceeds of which were used by the Company in part to repay all outstanding borrowings (plus accrued interest) under the Company’s then outstanding senior credit agreement, which satisfied the performance objective of the awards. Mr. Cornwell’s award, which vests in one-third tranches over three years from the refinancing date, will be used to repay in full his outstanding loan from the Company of $3,286,065 due January 25, 2006. Mr. Cornwell has irrevocably elected to defer payment of the first two tranches under his performance award until January 25, 2006 when his loan is repaid. On March 1, 2005, the Board of Directors approved the acceleration of payment of the third tranche of Mr. Cornwell’s award to January 25, 2006.

On September 21, 2004, Mr. Beck resigned from the Company to accept the appointment as Ambassador/Permanent Representative of the Republic of Palau to the United Nations. Mr. Beck remains on the Company’s Board of Directors. Pursuant to his separation agreement, the Company granted Mr. Beck severance totaling $1,008,000, payable in equal installments over eighteen months from the date of separation. In addition, Mr. Beck was awarded a pro-rated bonus of approximately $255,600 based upon achievements of certain financial targets in 2004 which was paid during the three months ended March 31, 2005.

Under the terms of the separation agreement, the Company and Mr. Beck amended the Performance Award and deferral of such payments pursuant to the separation agreement. Under the amended terms of the Performance Award, Mr. Beck’s Performance Award fully vested as of the separation date and a payment of $221,200 was made on September 30, 2004 to repay his outstanding promissory note to the Company. The remaining vested award of $3,065,000 is payable in cash on December 22, 2006.

In addition, the Company modified the terms of Mr. Beck’s outstanding stock option awards to allow his options to continue to vest and to allow Mr. Beck the right to exercise his options until the earlier of (i) the later of January 2, 2007 and 30 days after the last day of Mr. Beck’s continuous service on the Company’s Board of Directors and (ii) the fixed date on which each stock option award was initially set to expire.

During the fourth quarter of 2004 and pursuant to the separation agreement, Mr. Beck exchanged 80,250 shares of the Company’s Class A Voting Common Stock, par value $0.01 per share, for 80,250 shares of the Company’s Class B Non-Voting Common Stock, par value $0.01 per share.

From September 2004 through July 2005, the Company allowed Mr. Beck to use office space at no charge.

Note 5 – Restructuring and Severance Charges

Restructuring Charges

During 2004, the Company recorded a $2,027,000 restructuring charge relating to employee separations at both its corporate office and its Buffalo, New York television station. Of the total $2,027,000, approximately $1,406,000 related to severance and other benefits, associated with the departure of Stuart J. Beck (see Note 4, Related Parties) and administrative support staff at the corporate office which are being paid over an eighteen month period from date of separation, September 21, 2004. The remaining $621,000 restructuring charge includes severance and other benefits resulting from a reduction in the workforce at the Buffalo, New York television station. As of September 30, 2005, the Company completed the separation payments related to the Buffalo, New York restructuring charges, and reduced its accrual by approximately $10,000 to adjust for payments of benefits and amounts originally accrued for.

During the three months and nine months ended September 30, 2005, the Company recorded restructuring charges totaling $34,000 and $447,000, respectively, related to employee separations, which included severance, other benefits and stay-bonuses awarded to transitional employees at its Duluth, Minnesota and Fort Wayne, Indiana television stations. The Company anticipates minimal restructuring charges in future periods relating to stay-bonuses awarded to transitional employees of both its Duluth, Minnesota and Fort Wayne, Indiana television stations upon separation.

At September 30, 2005, the accruals for restructuring activities were included in “other accrued liabilities” on the

consolidated Balance Sheets and the related expense for the charge at the television stations are included in “station operating expenses” and the related expense for the corporate charges are included in “corporate separation agreement expenses” on the consolidated Statement of Operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

Acquisition Charges

During the three and nine months ended September 30, 2005, the Company accrued $5,000 and $627,000 related to employee separations, which included severance and other benefits as part of the Company’s purchase accounting. These accrued costs were a result of employees not retained by the Company subsequent to its acquisition of its Fort Wayne, Indiana television station, which included line through management employees.

At September 30, 2005, the accruals for acquisition activities of the television station were included in “other accrued liabilities” on the consolidated Balance Sheets. These charges were recognized in accordance with the provisions of Emerging Issues Task Force Issue No. 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination.

The following is a reconciliation of the aggregate liability recorded for restructuring and acquisition charges as of September 30, 2005:

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Three Months Ended September 30, 2005
	June 30, 2005		Provision		Payments		September 30, 2005
Television stations	$	273,000	$	29,000	$	180,000	$	122,000
Corporate	575,000		—		192,000		383,000

Total	$	848,000	$	29,000	$	372,000	$	505,000

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Nine Months Ended September 30, 2005
	December 31, 2004		Provision		Payments		September 30, 2005
Television stations	$	250,000	$	1,064,000	$	1,192,000	$	122,000
Corporate	1,214,000		—		831,000		383,000

Total	$	1,464,000	$	1,064,000	$	2,023,000	$	505,000

The liability for the restructuring and acquisition charges will be paid in accordance with the provisions of the severance agreements and payments are expected to be completed at various times through March 2006.

Note 6 – Debt

Current portion of long-term debt consists of the following:

	September 30, 2005		December 31, 2004
Malara Broadcast Group Senior Credit Facility	$	2,800,000	$	—

Total	$	2,800,000	$	—

Long-term debt consists of the following:

	September 30, 2005		December 31, 2004
9 3/4% Senior Secured Notes, due 2010, net of discount of $3,680,177 at September 30, 2005 and $4,208,702 at December 31, 2004	$	401,320,000	$	400,791,000
Malara Broadcast Group Senior Credit Facility, less current portion	50,522,000		—

Total	$	451,842,000	$	400,791,000

The Company’s 9 3/4 % Senior Secured Notes

On December 22, 2003, the Company completed a $405,000,000 offering of our 9 3/4 % Senior Secured Notes (the “Notes”)

due December 1, 2010, at a discount, resulting in proceeds of $400,067,100. Interest on the Notes is payable on December 1 and June 1 of each year, which commenced on June 1, 2004. The Company used the net proceeds from the offering in part to (i) repay all outstanding borrowings, plus accrued interest, under its senior credit agreement, (ii) redeem at par, plus accrued interest, all of its
9 3/8 % and 10 3/8 % senior subordinated notes due May and December 2005, respectively, and (iii) to repurchase at par, plus accrued interest, all of its 8 7/8 % senior subordinated notes due May 2008. The remaining proceeds were invested in short-term securities as well as being used for general working capital purposes.

The Notes are the Company’s senior secured obligations. The Notes are guaranteed by each of the Company’s domestic restricted subsidiaries. The Notes and the guarantees are secured by substantially all of the Company’s assets. The Company may redeem some or all of the Notes at any time on or after December 1, 2006. The Company may also redeem up to 35% of the aggregate principal amount of the Notes using the proceeds of one or more equity offerings on or before December 1, 2005.

The Indenture, which governs the Company’s Notes, restricts its ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional debt and issue preferred stock; (ii) make certain distributions, investments and other restricted payments; (iii) create certain liens; (iv) enter into transactions with affiliates; (v) enter into agreements that restrict its restricted subsidiaries from making payments to the Company; (vi) merge, consolidate or sell substantially all of its assets; (vii) sell or acquire assets; and (viii) enter into new lines of business.

Under the Indenture, the Malara Broadcast Group companies to which the Company provides services pursuant to the local services agreements are subject to the terms of the Indenture applicable to Restricted Subsidiaries that are not Guarantors, as such terms are defined in the Indenture.

Malara Broadcast Group’s Senior Credit Facility

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV in March 2005 with the proceeds of the Malara Broadcast Group Senior Credit Facility, consisting of two terms loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Term Loan A is secured by a letter of credit. To secure the reimbursement obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company pledged $25 million of U.S. Government Securities. To the extent that principal payments are made on the Term Loan A, the letter of credit shall be proportionately reduced and the Company shall be permitted to proportionately reduce the amount of the pledged U.S. Government Securities. The $25 million Malara Broadcast Group Term Loan B and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by the Company pursuant to a guaranty agreement (the “Granite Guaranty”).

The Malara Broadcast Group Senior Credit Facility contains covenants restricting the ability of Malara Broadcast Group and its subsidiaries to, among other things, (i) incur additional debt, (ii) incur liens, (iii) make loans and investments, (iv) incur contingent obligations (including hedging arrangements), (v) declare dividends or redeem or repurchase capital stock or debt, (vi) engage in certain mergers, acquisitions and asset sales, (vii) engage in transactions with affiliates, (viii) engage in sale-leaseback transactions and (ix) change the nature of its business and the business conducted by its subsidiaries. Malara Broadcast Group is also required to comply with financial covenants with respect to a minimum interest coverage ratio, minimum consolidated available cash flow, a maximum leverage ratio and minimum consolidated net revenue and limits on capital expenditures.

B and Revolving Loan are based, at Malara Broadcast Group’s option, at either (i) the Base Rate plus 4.625% per annum or (ii) the Adjusted Eurodollar Rate plus 7.375% per annum. In addition, Deferred Interest (as defined in the Malara Broadcast Group Senior Credit Facility) accrues with respect to, and is added to the principal amount of, the Term Loan B and Revolving Loan at a rate of 3% per annum. Additionally, Malara Broadcast Group is required to pay monthly commitment fees on the unused portion of its revolving loan commitment at a rate of 0.50% per annum. Cash interest payments are payable monthly.

Malara Broadcast Group is required to make monthly principal payments on the Term Loan B as follows: (i) $125,000 payable at the end of each month from June 1, 2006 through March 31, 2007, (ii) $158,333 payable at the end of each month from April 1, 2007, through March 31, 2008, and (iii) $216,667 payable at the end of each month from April 1, 2008, through February 1, 2010.

Malara Broadcast Group is required to make monthly principal payments on the Term Loan A and the Revolving Loan equal

to the product of (i) the Repayment Percentage (which is 25% unless there is an Event of Default or the Consolidated Loan to Stick Value is less than 70%, in which case the Repayment Percentage is 100%) and (ii) the Consolidated Excess Free Cash Flow for the month preceding the month in which such installment is due, as such terms are defined in the Malara Broadcast Group Senior Credit Facility. All such payments shall be applied first to repay the outstanding Revolving Loan to the full extent thereof (without a corresponding reduction in the Revolving Loan Commitment Amount) and second to repay the outstanding Term Loan A to the full extent thereof; provided that, if the Repayment Percentage for such monthly installment is 100%, the excess 75% of such monthly installment shall be applied first to repay the outstanding Revolving Loan to the full extent thereof and second to repay the outstanding Term Loan B to the full extent thereof. For the three and nine months ended September 30, 2005, the total principal payments made on the Revolving Loan approximated $309,000 and $692,000, respectively.

Note 7 – Discontinued Operations

In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the operating results of KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan are reported as discontinued operations in the accompanying consolidated balance sheets and statements of operations for the periods ended September 30, 2005 and 2004, since the asset sale agreements for KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan, each met all of the criteria for a qualifying plan of sale as of September 30, 2005. The respective assets and liabilities being disposed of have been classified as “held for sale” on the accompanying balance sheets presented and their operations have been recorded as discontinued operations. Discontinued operations have not been segregated in the consolidated statement of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and statements of operations.

KBWB and WDWB Disposition

On September 8, 2005, the Company entered into separate definitive agreements to sell KBWB-TV in San Francisco, California, including the related FCC license and WDWB-TV in Detroit, Michigan, including the FCC license to affiliates of AM Media Holdings, LLC. The agreements contain covenants by the Company not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by the Company for the sale of KBWB-TV is $72,500,000, before closing adjustments, which is payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by the Company for the sale of WDWB-TV is $87,500,000, before closing adjustments, which is payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively. The Company anticipates both transactions, each of which is subject to customary closing conditions, to close in the fourth quarter of 2005. As of September 30, 2005 the aggregate assets held for sale totaled $148,256,000 and the aggregate liabilities held for sale totaled $36,408,000. At December 31, 2004, the aggregate assets held for sale totaled $158,143,000 and the aggregate liabilities held for sale totaled $46,057,000.

Cash related to discontinued operations, which the Company will retain the rights to, is included in cash and cash equivalents in the accompanying consolidated balance sheets for all periods presented. Such amounts totaled $397,000 as of September 30, 2005 and $649,000 as of December 31, 2004. Accounts receivable related to discontinued operations, which the Company will retain the rights to and collect, is included in accounts receivable, net of allowance for doubtful accounts, in the accompanying consolidated balance sheets for all periods presented. Such amounts totaled $4,667,000 (net of allowance of $226,000) as of September 30, 2005 and $6,091,000 (net of allowance of $415,000) as of December 31, 2004. Net loss from discontinued operations was $2,166,000 and $4,045,000 for the three and nine months ended September 30, 2005, respectively. Net loss from discontinued operations was $5,307,000 and $7,612,000 for the three and nine months ended September 30, 2004, respectively. Net revenues from discontinued operations were $7,334,000 and $23,203,000 for the three and nine months ended September 30, 2005, respectively. Net revenues from discontinued operations were $7,609,000 and $24,880,000 for the three and nine months ended September 30, 2004, respectively.

Summarized financial data for assets and liabilities held for sale are as follows:

	Balance Sheet Data
	September 30,		December 31,
	2005		2004
Film contract rights	$	7,750,000	$	12,851,000
Property and equipment, net	7,883,000		8,510,000
Intangible and other assets	132,623,000		136,782,000
Total assets held for sale	$	148,256,000	$	158,143,000

Film contract rights payable	$	29,296,000	$	37,118,000
Accrued and other liabilities	7,112,000		8,939,000
Total liabilities held for sale	$	36,408,000	$	46,057,000

Note 8 – Condensed Consolidating Financial Information

The Granite Broadcasting Corporation column represents the registrant’s financial information. The Malara Broadcast Group column represents the consolidated financial information of Malara Broadcast Group, an independently owned entity in which the Company is deemed to be the primary beneficiary (see Note 3) and is required to be consolidated as a variable interest entity in accordance with Interpretation 46.

BALANCE SHEET

September 30, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Assets

Current assets:
Cash and cash equivalents	$	20,456,902		$	1,520,125		$	—		$	21,977,027
Accounts receivable, net	17,292,898			2,513,244			—			19,806,142
Other current assets	6,294,042			1,136,867			—			7,430,909
Assets held for sale	148,255,779			—			—			148,255,779
Due from consolidated entity	10,040,390			130,186			(10,170,576		)	—

Total current assets	202,340,011			5,300,422			(10,170,576		)	197,469,857

Restricted cash equivalents	24,997,500			—			—			24,997,500
Property and equipment, net	33,070,842			8,828,292			—			41,899,134
Other non current assets	19,519,140			1,307,628			(3,646,668		)	17,180,100
Intangibles, net	153,624,776			44,782,741			(27,731,100		)	170,676,417

Total assets	$	433,552,269		$	60,219,083		$	(41,548,344	)	$	452,223,008

Liabilities and stockholders’ deficit

Current liabilities:
Accounts payable and other accrued liabilities	$	19,035,970		$	365,971		$	—		$	19,401,941
Current portion of long-term debt	—			2,800,000			—			2,800,000
Other current liabilities	6,526,045			1,200,040			—			7,726,085
Liabilities held for sale	36,407,836			—			—			36,407,836
Due to consolidated entity	130,186			10,040,390			(10,170,576		)	—

Total current liabilities	62,100,037			14,406,401			(10,170,576		)	66,335,862

Long-term debt, less current portion	401,319,823			50,522,358			—			451,842,181
Other non current liabilities	32,391,442			3,940,513			(3,646,668		)	32,685,287
Redeemable preferred stock	199,102,319			—			—			199,102,319
Accrued dividends on redeemable preferred stock	89,417,456			—			—			89,417,456

Stockholders’ deficit:
Common stock	195,783			—			—			195,783
Additional paid-in capital	370,246			—			—			370,246
Accumulated deficit	(350,384,037		)	(8,650,189		)	(27,731,100		)	(386,765,326		)
Less: Unearned compensation	(85,125		)	—			—			(85,125		)
Treasury stock, at cost	(875,675		)	—			—			(875,675		)
Total stockholders’ deficit	(350,778,808		)	(8,650,189		)	(27,731,100		)	(387,160,097		)
Total liabilities and stockholders’ deficit	$	433,552,269		$	60,219,083		$	(41,548,344	)	$	452,223,008

STATEMENT OF OPERATIONS

For the three months ended September 30, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Net revenues	$	21,147,355		$	1,625,665		$	(1,950,000	)	$	20,823,020

Station operating expenses:
Direct operating expenses (exclusive of depreciation and amortization expenses shown separately below)	8,567,349			415,625						8,982,974
Selling, general and administrative expenses (exclusive of depreciation and amortization expenses shown separately below)	6,027,611			2,381,470			(1,950,000		)	6,459,081
Corporate expense (exclusive of depreciation expense shown separately below)	2,558,465			—						2,558,465
Depreciation and amortization	1,697,619			339,609						2,037,228
Performance award expense	319,797			—						319,797
Non-cash compensation expense	94,146			—						94,146

Operating income (loss)	1,882,368			(1,511,039		)				371,329

Other expenses (income):
Interest expense	9,872,456			1,300,064						11,172,520
Interest income	(574,854		)	—						(574,854		)
Non-cash interest expense	939,927			68,952						1,008,879
Non-cash preferred stock dividend	6,386,961			—						6,386,961
Other	(1,324,550		)	1,346,630						22,080

Loss from continuing operations before income taxes	(13,417,572		)	(4,226,685		)				(17,644,257		)
Benefit for income taxes	(156,086		)	—						(156,086		)

Loss from continuing operations	(13,261,486		)	(4,226,685		)				(17,488,171		)
Discontinued operations:
Loss from discontinued operations, net of taxes	(2,166,190		)	—						(2,166,190		)

Net loss	$	(15,427,676	)	$	(4,226,685	)				$	(19,654,361	)

Basic and diluted net loss per share from continuing operations	$	(0.68	)	N/A						$	(0.89	)
Basic and diluted net loss per share from discontinued operations	$	(0.11	)	N/A						$	(0.11	)
Basic and diluted net loss per share	$	(0.79	)	N/A						$	(1.00	)

Weighted average common shares outstanding	19,578,392			N/A						19,578,392

STATEMENT OF OPERATIONS

For the nine months ended September 30, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Net revenues	$	61,859,615		$	4,245,044		$	(4,403,226	)	$	61,701,433

Station operating expenses:
Direct operating expenses (exclusive of depreciation and amortization expenses shown separately below)	25,335,514			965,304						26,300,818
Selling, general and administrative expenses (exclusive of depreciation and amortization expenses shown separately below)	17,624,348			5,137,479			(4,403,226		)	18,358,601
Corporate expense (exclusive of depreciation expense shown separately below)	7,981,523			—						7,981,523
Depreciation and amortization	5,379,388			743,628						6,123,016
Performance award expense	959,391			—						959,391
Non-cash compensation expense	282,296			—						282,296

Operating income (loss)	4,297,155			(2,601,367		)				1,695,788

Other expenses (income):
Interest expense	29,625,162			2,878,480						32,503,642
Interest income	(1,312,653		)	—						(1,312,653		)
Non-cash interest expense	2,787,713			155,085						2,942,798
Non-cash preferred stock dividend	19,160,883			—						19,160,883
Other	(2,822,845		)	3,015,257						192,412

Loss from continuing operations before income taxes	(43,141,105		)	(8,650,189		)				(51,791,294		)
Benefit for income taxes	(481,479		)	—						(481,479		)

Loss from continuing operations	(42,659,626		)	(8,650,189		)				(51,309,815		)
Discontinued operations:
Loss from discontinued operations, net of taxes	(4,045,227		)	—						(4,045,227		)

Net loss	$	(46,704,853	)	$	(8,650,189	)				$	(55,355,042	)

Basic and diluted net loss per share from continuing operations	$	(2.18	)	N/A						$	(2.62	)
Basic and diluted net loss per share from discontinued operations	$	(0.21	)	N/A						$	(0.21	)
Basic and diluted net loss per share	$	(2.39	)	N/A						$	(2.83	)

Weighted average common shares outstanding	19,552,211			N/A						19,552,211

STATEMENT OF CASH FLOWS

For the nine months ended September 30, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Cash flows (used in) provided by operating activities	$	(13,920,836	)	$	2,400,270		$	(31,716	)	$	(11,552,282	)

Cash flows from investing activities:
Sales (purchase) of marketable securities and other investments	5,600,506			—			—			5,600,506
Proceeds from sale of assets	45,417,485			—			(45,417,485		)	—
Payment for acquisition of assets	(45,878,642		)	(55,312,983		)	45,449,201			(55,742,424		)
Proceeds (payments) from option agreements	(3,646,668		)	3,646,668			—			—
Purchase of U.S. Government Securities	(24,997,500		)	—			—			(24,997,500		)
Capital expenditures	(2,111,752		)	(643,946		)	—			(2,755,698		)
Net cash used in investing activities	(25,616,571		)	(52,310,261		)	31,716			(77,895,116		)

Cash flows from financing activities:
Proceeds from senior credit facility	—			53,500,000						53,500,000
Payment of senior credit facility	—			(691,884		)				(691,884		)
Payment of deferred financing fees	(864,401		)	(1,378,000		)				(2,242,401		)
Net cash (used in) provided by financing activities	(864,401		)	51,430,116						50,565,715

Net (decrease) increase in cash and cash equivalents	(40,401,808		)	1,520,125						(38,881,683		)
Cash and cash equivalents, beginning of period	60,858,710			—						60,858,710
Cash and cash equivalents, end of period	$	20,456,902		$	1,520,125					$	21,977,027

Supplemental information:
Cash paid for interest	$	19,743,750		$	2,352,624					$	22,096,374
Cash paid for income taxes	116,766			—						116,766
Non-cash capital expenditures	258,833			—						258,833

Other Historical Consolidation Information

At December 31, 2004, the Company’s consolidated Balance Sheets included in “other non-current assets” and “deferred financing fees” of $130,000 and $32,500, respectively, as a result of the consolidation of Malara Broadcast Group.

For the three and nine months ended September 30, 2004, consolidation of variable interest entity in accordance with Interpretation 46 was not applicable for the Company’s Statement of Operations and Statement of Cash Flows.

Note 9 – Intangibles

Intangibles

Intangible assets are summarized as follows:

	September 30, 2005			December 31, 2004
	Unaudited

Goodwill	$	64,340,000		$	42,706,000
Network affiliations	103,267,000			79,591,000
Broadcast licenses	54,230,000			46,807,000
	221,837,000			169,104,000
Accumulated amortization	(51,161,000		)	(48,817,000		)

Net intangible assets	$	170,676,000		$	120,287,000

The Company amortizes its network affiliation agreements for which it does not make contractual payments using an estimated useful life of 25 years and amortizes its network affiliation agreements for which it makes contractual payments over the life of the contract. The Company recorded amortization expense from continuing operations of $2,426,000 for the year ended December 31, 2004 and $2,344,000 for the nine months ended September 30, 2005.

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

The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto in this Quarterly Report and the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the year ended December 31, 2004.

Executive Summary

We own and operate eight network affiliated television stations in geographically diverse markets reaching over 6% of the nation’s television households. As of September 30, 2005, four stations are affiliated with NBC, one with ABC and one with CBS, our Big Three Affiliates, and two stations are affiliated with the Warner Bros. Television Network, our WB Affiliates. The NBC affiliates are KSEE-TV, Fresno-Visalia, California, WEEK-TV, Peoria-Bloomington, Illinois, KBJR-TV, Duluth, Minnesota - Superior, Wisconsin and WISE-TV, Fort Wayne, Indiana. The ABC affiliate is WKBW-TV, Buffalo, New York. The CBS affiliate is WTVH-TV, Syracuse, New York. The WB affiliates are KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan. As discussed in further detail below, in March 2005, we completed the sale of WPTA-TV, the ABC affiliate serving Fort Wayne, Indiana to Malara Broadcast Group and the acquisition of WISE-TV, the NBC affiliate serving Fort Wayne, Indiana from New Vision Group, LLC.

Through shared services agreements and advertising representation agreements (which we generally refer to as local service agreements) with Malara Broadcast Group, we currently provide advertising, sales promotion, administrative and selected programming to two stations owned and operated by Malara Broadcast Group. Malara Broadcast Group is owned by an independent third party who owns and operates two television stations as of September 30, 2005. We do not own Malara Broadcast Group or its television stations. In order for both us and Malara Broadcast Group to continue to comply with FCC regulations, Malara Broadcast Group must maintain complete responsibility for and control over programming, finances, personnel and operations of its television stations. However, as a result of our guarantee of the obligations incurred under Malara Broadcast Group’s senior secured credit facility and the revolving loan, arrangements under the local service agreements and put or call option agreements, under United States generally accepted accounting principles (“U.S. GAAP”), specifically, Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities (“Interpretation 46”) we are required to consolidate Malara Broadcast Group’s financial position, results of operations and statement of cash flows in our consolidated results. In addition, in accordance with the provisions of Interpretation 46, the Company did not account for the sale of the assets of WPTA-TV and no gain there from was recognized in the consolidated statements of operations. In addition, we did not apply the provisions of purchase accounting to Malara Broadcast Group’s acquisition of WPTA-TV.

On September 8, 2005, we entered into separate definitive agreements to sell KBWB-TV serving San Francisco, California and WDWB-TV serving Detroit, Michigan, to affiliates of AM Media Holdings, LLC. The agreements contain covenants by us not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by us for the sale of KBWB-TV is $72,500,000, before closing adjustments, which is payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by us for the sale of WDWB-TV is $87,500,000, before closing adjustments, which is payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively. We anticipate both transactions, each of which is subject to customary closing conditions, to close in the fourth quarter of 2005. We have reclassified the operations of these stations as discontinued operations and the assets and liabilities as held for sale in our consolidated balance sheets and statements of operations in accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. (See Note 7. Discontinued Operations in the Notes to our Consolidated Financial Statements.)

We believe that inflation has not had a material impact on our results of operations for the three and nine months ended September 30, 2005. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.

Our operating revenues are generally lower in the first calendar quarter and generally higher in the fourth calendar quarter than in the other two quarters, due in part to increases in retail advertising in the fall months in preparation for the holiday season, and in election years due to increased political advertising.

Our revenues are derived principally from local and national advertising, political advertising in an election year and, to a

lesser extent, from network compensation for the broadcast of programming and revenues from studio rental and commercial

production activities. The primary operating expenses involved in owning and operating television stations are employee salaries, depreciation and amortization, programming, advertising and promotion. Amounts referred to in the following discussion have been rounded to the nearest thousand.

Critical Accounting Polices

We prepare our consolidated financial statements in conformity with United States generally accepted accounting principles which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year.

Information with respect to our critical accounting policies which we believe could affect our reported results require subjective judgments by management and is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Result of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. We believe that as of September 30, 2005, the following is the only material change to this information.

Consolidation of Variable Interest Entities

Our financial statements include the accounts of independently-owned Malara Broadcast Group since it has been determined that we are the primary beneficiary of a variable interest entity (“VIE”) in accordance with FASB Interpretation 46, as revised in December 2003, Interpretation 46(R). Under U.S. GAAP a company must consolidate an entity when it has a “controlling financial interest” in such entity resulting from the company’s ownership of a majority of the entity’s voting rights. Interpretation 46(R) expands the definition of controlling financial interest to include factors other than equity ownership and voting rights.

In applying Interpretation 46(R), we base our decision to consolidate an entity on quantitative and qualitative factors that indicate whether or not we are responsible for a majority of the entity’s economic risks and receive a majority of the entity’s economic rewards, or “primary beneficiary.” Our evaluation of whether or not we are deemed to be the primary beneficiary is an ongoing process and may alter as facts and circumstances change.

Malara Broadcast Group is included in our consolidated financial statements because we believe we are the primary beneficiary of Malara Broadcast Group as a result of local service agreements we have with each of the Malara stations, our guarantee of the obligations incurred under the Malara Broadcast Group Senior Credit Facility and the put/call option agreements between us and Malara Broadcast Group. However, we do not own Malara Broadcast Group or its television stations.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005 and 2004

Continuing Operations

Set forth below are significant factors that contributed to our operating results from continuing operations for the three months ended September 30, 2005 and 2004, respectively.

GROSS REVENUES BY CATEGORY,

CONSOLIDATED CONTINUING OPERATIONS

	Three Months Ended September 30,
	2005		2004		% Change
Local/Regional	$	13,167,000	$	11,125,000	18.4	%
National	9,005,000		8,392,000		7.3	%
Network Compensation	510,000		741,000		(31.2	)%
Political	672,000		1,568,000		(57.1	)%
Other	1,030,000		986,000		4.5	%
Gross Revenue	24,384,000		22,812,000		6.9	%
Agency Commissions	3,561,000		3,375,000		5.5	%
Net Revenue	$	20,823,000	$	19,437,000	7.1	%

The following discussion is related to the results of our continuing operations, except for discussions regarding our statements of cash flows which include the results of our discontinued operations.

Net revenues consist primarily of local, national and political airtime sales, net of sales adjustments and agency commissions. Additional, but less significant, amounts are generated from network compensation, internet revenues, barter/trade revenues, production revenues and other revenues.

Net revenue increased $1,386,000 or 7.1% to $20,823,000 for the three months ended September 30, 2005, from $19,437,000 for the three months ended September 30, 2004. The increase was due to healthy increases in non-political local revenues of $2,042,000 or 18% and non-political national revenues of $613,000 or 7% offset by decreases in political advertising revenue during a non-election year of $896,000 or 57% and network compensation revenue of $231,000 or 31%. The increases in both non-political local and non-political national revenues were primarily due to the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results during the three months ended September 30, 2005 which were not in our consolidated results during the same period last year. Malara Broadcast Group’s net revenues totaled $ 1,626,000 or 7.8% of the total net revenues during the three months ended September 30, 2005.

Direct operating expenses, consisting primarily of programming, news and engineering increased $681,000 or 8.2% to $8,983,000 for the three months ended September 30, 2005 from $8,302,000 for the same period in 2004. The increase was primarily due to increases in amortization of film contract rights, salaries and group health insurance as a result of the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results of during the three months ended September 30, 2005 which were not in our consolidated results during the same period last year. Selling, general and administrative expenses increased $587,000 or 10% to $6,459,000 for the three months ended September 30, 2005 from $5,872,000 for the same period in 2004. The increase was primarily due to increases salaries and commissions as a result of the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results of during the three months ended September 30, 2005 which were not in our consolidated results during the same period last year. Malara Broadcast Group’s direct operating expenses and selling, general and administrative expenses totaled $847,000 of the total station expenses, after elimination of expenses relating to various local service agreements between us and Malara Broadcast Group.

Other Consolidated Expenses

Amortization expense increased $237,000 or 39% during the three months ended September 30, 2005 as compared to the same period a year earlier. This increase was primarily due to the incremental amortization expense of two additional television stations, KDLH and WISE, which were acquired in March 2005. Depreciation expense decreased $191,000 or 14% during the three months ended September 30, 2005 compared to the same period a year earlier. The decrease was primarily due to the effect of the change in useful lives assigned to our fixed assets as of January 1, 2005 in addition to fixed assets written off in the third and fourth quarters of 2004 and first two quarters of 2005, thereby resulting in lower depreciation expense during 2005. This decrease was offset, in part, by increased depreciation expense due to the incremental depreciation expense of two additional television stations, KDLH and WISE, which were acquired in March 2005.

Corporate expense totaled $2,558,000; a decrease of $179,000 or 7% compared to $2,737,000 for the three months ended September 30, 2004. The decrease was primarily due to planned reduction in compensation and other non-personnel related expenses, offset in part by increases in professional fees related to the sale of WPTA-TV and compliance with the Sarbanes-Oxley Act. The performance award expense for the three months ended September 30, 2005 totaled $320,000; a decrease of $1,592,000 compared to $1,912,000 for the three months ended September 30, 2004. The decrease was primarily due to the separation of a company executive for which the unvested portion of the executive’s performance award expense was accelerated during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Corporate separation agreement expense decreased $1,251,000 compared to the same period in 2004 due primarily to the separation of a company executive during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Non-cash compensation expense decreased $16,000 or 14% primarily due to the forfeitures of stock awards granted to certain personnel in prior years who are no longer employed by us as of September 30, 2005.

Interest expense totaled $11,173,000; an increase of $1,301,000 or 13% compared to $9,872,000 for the three months ended September 30, 2004. The increase was primarily due to the incremental interest expense on Malara Broadcast Group’s Senior Credit Facility which totaled approximately $1,300,000. Interest income totaled $575,000; an increase of $226,000, or 65% compared to $349,000 for the three months ended September 30, 2004. The increase was primarily due to interest earned on the company’s restricted cash used as collateral for the Malara Broadcast Group Term Loan A, offset by the decreased average cash balance invested during the three months ended September 30, 2005 as compared to the same period in 2004. Non-cash interest expense totaled $1,009,000; an increase of $52,000 or 5% compared to $957,000 for the three months ended September 30, 2004.

We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $6,387,000 during the three months ended September 30, 2005 and 2004, respectively as required by Statement of Financial Accounting Standards No.150.

During the three months ended September 30, 2005, we recorded a deferred tax benefit of $156,000, compared to a deferred tax benefit of $4,959,000 for the three months ended September 30, 2004. The decline in the tax benefit is primarily due to an increase in the valuation allowance against net operating loss carry forwards, which may not be utilized in future periods.

Discontinued Operations

Set forth below are significant factors that contributed to our operating results from discontinued operations for the three months ended September 30, 2005 and 2004, respectively.

GROSS REVENUES BY CATEGORY,

CONSOLIDATED DISCONTINUED OPERATIONS

	Three Months Ended September 30,
	2005		2004		% Change

Local/Regional	$	4,433,000	$	4,564,000	(2.9	)%
National	3,826,000		4,431,000		(13.7	)%
Political	117,000		74,000		58.1	%
Other	258,000		12,000		2050	%
Gross Revenue	8,634,000		9,081,000		(4.9	)%
Agency Commissions	1,300,000		1,472,000		(11.7	)%
Net Revenue	$	7,334,000	$	7,609,000	(3.6	)%

Net revenue from our discontinued operations decreased $275,000 or 3.6% to $7,334,000 from $7,609,000 due primarily to decreases in non-political national revenues of $605,000 and non-political local revenues of $131,000. The non-political national revenue decreases were primarily due to declines in the automotive, paid programming, entertainment/movie and telecommunications categories. The non-political local revenue decreases were primarily due to declines in the automotive, department stores, and educational schools categories.

Direct operating expenses from our discontinued operations, consisting primarily of programming and engineering expenses, decreased $2,811,000 or 36% to $5,088,000 for the three months ended September 30, 2005 from $7,899,000 for the same period in 2004. The decrease was primarily due to lower amortization of film contract rights due to the effects of write-downs taken in 2004, and the replacement of expensive, unprofitable programs with less expensive, profitable programming. There were approximately $1,600,000 and $3,600,000 of film asset write-downs during the three months ended September 30, 2005 and 2004, respectively. Selling, general and administrative expenses from our discontinued operations decreased $106,000 or 3% to $2,948,000 for the three months ended September 30, 2005 from $3,054,000 for the same period in 2004. The decrease was primarily due to lower advertising and promotion expenses.

Nine Months Ended September 30, 2005 and 2004

Continuing Operations

Set forth below are significant factors that contributed to our operating results from continuing operations for the nine months ended September 30, 2005 and 2004, respectively.

GROSS REVENUES BY CATEGORY,

CONSOLIDATED CONTINUING OPERATIONS

	Nine Months Ended September 30,
	2005		2004		% Change

Local/Regional	$	38,780,000	$	33,027,000	17.4	%
National	26,597,000		25,513,000		4.2	%
Network Compensation	2,176,000		2,329,000		(6.6	)%
Political	1,362,000		3,613,000		(62.3	)%
Other	3,244,000		2,797,000		15.9	%
Gross Revenue	72,159,000		67,279,000		7.3	%
Agency Commissions	10,458,000		9,949,000		5.1	%
Net Revenue	$	61,701,000	$	57,330,000	7.6	%

Net revenue increased $4,371,000 or 7.6% to $61,701,000 for the nine months ended September 30, 2005, from $57,330,000 for the nine months ended September 30, 2004. The increase on a consolidated basis was primarily due to healthy increase in non-political local revenue of $5,753,000 or 17.4%, and non-political national revenue of $1,084,000 or 4.2%, offset by decreases in political advertising revenue during a non-presidential election year of $2,251,000 or 62.3%. The increases in both non-political local and non-political national revenues was primarily due to the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results during the nine months ended September 30, 2005 which were not in our consolidated results during the same period last year. Malara Broadcast Group’s net revenues totaled $4,245,000 or 6.9% of the total net revenues during the nine months ended September 30, 2005.

Direct operating expenses, consisting primarily of programming, news and engineering expenses, increased $1,651,000 or 7% to $26,301,000 for the nine months ended September 30, 2005 from $24,650,000 for the same period in 2004. The increase was primarily due to increases in amortization of film contract rights, salaries and group health insurance as a result of the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results of during the nine months ended September 30, 2005 which were not in our consolidated results during the same period last year. Selling, general and administrative expenses increased $1,414,000 or 8% to $18,359,000 for the nine months ended September 30, 2005 from $16,945,000 for the same period in 2004. The increase was primarily due to increases salaries, commissions, sales and promotions expenses as a result of the inclusion of two additional stations, WISE-TV and KDLH-TV in our consolidated results of during the nine months ended September 30, 2005 which were not in our consolidated results during the same period last year. Malara Broadcast Group’s direct operating expenses and selling, general and administrative expenses totaled $1,700,000 of the total station expenses, after elimination of expenses relating to various local service agreements between us and Malara Broadcast Group.

Other Consolidated Expenses

Amortization expense increased $525,000 or 29% during the nine months ended September 30, 2005 as compared to the same period a year earlier. This increase was primarily due to the incremental amortization expense of two additional television stations, KDLH and WISE, which were acquired in March 2005. Depreciation expense decreased $481,000 or 11% during the nine months ended September 30, 2005 compared to the same period a year earlier. The decrease was primarily due to the effect of the change in useful lives assigned to our fixed assets as of January 1, 2005 in addition to fixed assets written off in the third and fourth quarters of 2004 and first and second quarters of 2005, thereby resulting in lower depreciation expense during 2005. This decrease was offset, in part, by increased depreciation expense due to the incremental depreciation expense of two additional television stations, KDLH and WISE, which were acquired in March 2005.

Corporate expense totaled $7,982,000; a decrease of $728,000 or 8% compared to $8,710,000 for the nine months ended September 30, 2004. The decrease was primarily due to planned reduction in compensation and other non-personnel related expenses, offset in part by increases in professional fees related to the sale of WPTA-TV and compliance with the Sarbanes-Oxley Act. The performance award expense for the nine months ended September 30, 2005 totaled $959,000; a decrease of $2,001,000 compared to $2,960,000 for the nine months ended September 30, 2004. The decrease was primarily due to the separation of a company executive for which the unvested portion of the executive’s performance award expense was accelerated during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Corporate separation agreement expense for the nine months ended September 30, 2005 decreased $1,251,000 compared to the same period in 2004 due primarily to the separation of a company executive during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Non-cash compensation expense for the nine months ended September 30, 2005 decreased $262,000 or 48% primarily due to the forfeitures of stock awards granted to certain personnel in prior years who are no longer employed by us as of September 30, 2005.

Interest expense totaled $32,504,000; an increase of $2,887,000 or 10% compared to $29,617,000 for the nine months ended September 30, 2004. The increase was primarily due to interest expense on Malara Broadcast Group’s Senior Credit Facility which totaled approximately $2,878,000. Interest income totaled $1,313,000; an increase of $447,000, or 52% compared to $866,000 for the nine months ended September 30, 2004. The increase was primarily due to the interest earned on the company’s restricted cash used as collateral for the Malara Broadcast Group Term Loan A, offset by the decreased average cash balance invested during the nine months ended September 30, 2005 as compared to the same period in 2004. Non-cash interest expense totaled $2,943,000; a decrease of $26,000 or 1% compared to $2,969,000 for the nine months ended September 30, 2004.

We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $19,161,000 during the nine months ended September 30, 2005 and 2004, respectively as required by Statement of Financial Accounting Standards No.150.

During the nine months ended September 30, 2005, we recorded a deferred tax benefit of $481,000, compared to a deferred tax benefit of $9,637,000 for the nine months ended September 30, 2004. The decline in the tax benefit is primarily due to an increase in the valuation allowance against net operating loss carry forward s, which may not be utilized in future periods.

Discontinued Operations

Set forth below are significant factors that contributed to our operating results from discontinued operations for the three months ended September 30, 2005 and 2004, respectively.

GROSS REVENUES BY CATEGORY,

CONSOLIDATED DISCONTINUED OPERATIONS

	Three Months Ended September 30,
	2005		2004		% Change

Local/Regional	$	14,589,000	$	15,494,000	(5.8	)%
National	11,780,000		13,836,000		(14.9	)%
Political	139,000		109,000		27.5	%
Other	715,000		231,000		209.5	%
Gross Revenue	27,223,000		29,670,000		(8.2	)%
Agency Commissions	4,019,000		4,790,000		(16.1	)%
Net Revenue	$	23,204,000	$	24,880,000	(6.7	)%

Net revenue from our discontinued operations decreased $1,676,000 or 6.7% to $23,204,000 from $24,880,000 due primarily to decreases in non-political national revenues of $2,056,000 and non-political local revenues of $905,000. The non-political national revenue decreases were primarily due to declines in the automotive, entertainment/movie, pharmaceuticals and educational/instructional schools categories. The non-political local revenue decreases were primarily due to declines in the automotive, department stores, and educational/instructional schools categories.

Direct operating expenses from our discontinued operations, consisting primarily of programming and engineering expenses, decreased $4,653,000 or 27% to $12,588,000 for the nine months ended September 30, 2005 from $17,241,000 for the same period in 2004. The decrease was primarily due to lower amortization of film contract rights due to the effects of write-downs taken in 2004, and the replacement of expensive, unprofitable programs with less expensive, profitable programming. There were approximately $1,600,000 and $3,600,000 of film asset write-downs during the nine months ended September 30, 2005 and 2004, respectively. Selling, general and administrative expenses from our discontinued operations decreased $404,000 or 4% to $9,291,000 for the nine months ended September 30, 2005 from $9,695,000 for the same period in 2004. The decrease was primarily due to lower advertising and promotion expenses.

Restructuring and Severance Charges

Restructuring Charges

During 2004, we recognized a $2,027,000 restructuring charge relating to employee separations at both our corporate office and our Buffalo, New York television station. Of the total $2,027,000, approximately $1,406,000 related to severance and other benefits, associated with the departure of Stuart J. Beck (see Note 4, Related Parties) and administrative support staff at the corporate office which is being paid over an eighteen month period from date of separation, September 21, 2004. The remaining $621,000 restructuring charge includes severance and other benefits resulting from a reduction in the workforce at the Buffalo, New York television station. As of September 30, 2005, we completed the separation payments related to the Buffalo, New York restructuring charges, and reduced its accrual by approximately $10,000 to adjust for payments of benefits and amounts originally accrued for.

During the three months and nine months ended September 30, 2005, we recorded restructuring charges totaling $34,000 and $447,000, respectively, related to employee separations, which included severance, other benefits and stay-bonuses awarded to transitional employees at its Duluth, Minnesota and Fort Wayne, Indiana television stations. We anticipate minimal restructuring charges in future periods relating to stay-bonuses awarded to transitional employees at both of our Duluth, Minnesota and Fort Wayne, Indiana television stations upon separation.

At September 30, 2005, the accruals for restructuring activities were included in “other accrued liabilities” on the consolidated Balance Sheets and the related expense for the charge at the television stations is included in “station operating expenses” and the related expense for the corporate charges are included in “corporate separation agreement expenses” on the consolidated Statement of Operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

Acquisition Charges

At September 30, 2005, the accruals for acquisition activities of the television station are included in “other accrued liabilities” on the consolidated Balance Sheets. These charges were recognized in accordance with the provisions of Emerging Issues Task Force Issue No. 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination.

The following is a reconciliation of the aggregate liability recorded for restructuring and acquisition charges as of September 30, 2005:

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Three Months Ended September 30, 2005
	June 30, 2005		Provision		Payments		September 30, 2005

Television station	$	273,000	$	29,000	$	180,000	$	122,000
Corporate	575,000		—		192,000		383,000

Total	$	848,000	$	29,000	$	372,000	$	505,000

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Nine Months Ended September 30, 2005
	December 31, 2004		Provision		Payments		September 30, 2005

Television station	$	250,000	$	1,064,000	$	1,192,000	$	122,000
Corporate	1,214,000		—		831,000		383,000

Total	$	1,464,000	$	1,064,000	$	2,023,000	$	505,000

Recent Developments

On March 7, 2005, we completed the sale of WPTA-TV, the ABC affiliate serving Fort Wayne, Indiana (“WPTA-TV”), to a subsidiary of Malara Broadcast Group for approximately $45.4 million, pursuant to the terms and conditions of an asset purchase agreement, dated April 23, 2004. In addition, on March 8, 2005, we completed the purchase of WISE-TV, the NBC affiliate serving Fort Wayne, Indiana, from New Vision Group, LLC (“New Vision Television”) for approximately $43.5 million, pursuant to the terms and conditions of a stock purchase agreement, dated April 23, 2004.

In addition, a subsidiary of Malara Broadcast Group on March 8, 2005, acquired CBS affiliate KDLH-TV, Duluth, Minnesota-Superior, Wisconsin (“KDLH-TV”) from New Vision Television for approximately $9.5 million, pursuant to the terms and conditions of an asset purchase agreement, dated April 23, 2004. We currently own and operate KBJR-TV, the NBC affiliate serving Duluth-Superior.

On March 8, 2005, we entered into a strategic arrangement with Malara Broadcast Group, under which we provide advertising sales, promotion and administrative services, and selected programming to Malara Broadcast Group-owned stations WPTA-TV and KDLH-TV in return for certain fees that will be paid by Malara Broadcast Group to us. The fees payable to us will be paid after current debt service as well as certain other expenses Malara Broadcast Group incurs directly are satisfied. During the three and nine months ended September 30, 2005, Malara Broadcast Group paid us approximately $996,000 and $1,796,000, respectively, owed under the strategic arrangements for both WPTA-TV and KDLH-TV. As of September 30, 2005, the total amount owed to us from Malara Broadcast Group totaled approximately $9,998,000.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of borrowings pursuant to the Malara Broadcast Group Senior Credit Facility. The Malara Broadcast Group Senior Credit Facility provides for two term loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Term Loan A is secured by a letter of credit. To secure the reimbursement obligation in the event of a draw on the letter of credit, we pledged $25 million of U.S. Government Securities which are restricted and not available for working capital or any other purposes. To the extent that principal payments are made on the Term Loan A, the letter of credit shall be proportionately reduced and we shall be permitted to proportionately reduce the amount of the pledged U.S. Government Securities. The $25 million Malara Broadcast Group Term Loan B and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by us. For the three and nine months ended September 30, 2005, the total principal payments made on the Revolving Loan approximated $309,000 and $692,000, respectively.

On September 8, 2005, we entered into separate definitive agreements to sell KBWB-TV in San Francisco, California, including the related FCC license and WDWB-TV in Detroit, Michigan, including the related FCC license, to affiliates of AM Media Holdings, LLC. The agreements contain covenants by us not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by us for the sale of KBWB-TV is $72,500,000, before closing adjustments, which is payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by us for the sale of WDWB-TV is $87,500,000, before closing adjustments, which is payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively. We anticipate both transactions, each of which is subject to customary closing conditions, to close in the fourth quarter of 2005. As of September 30, 2005 the aggregate assets held for sale totaled $148,256,000 and the aggregate liabilities held for sale totaled $36,408,000. At December 31, 2004, the aggregate assets held for sale totaled $158,143,000 and the aggregate liabilities held for sale totaled $46,057,000. Pursuant to the agreements, we will retain

the rights to the existing cash and cash equivalents as well as the accounts receivable which we will retain the rights to collect. Cash and cash equivalents totaled $397,000 as of September 30, 2005 and $649,000 as of December 31, 2004 are included in our consolidated balance sheets. Accounts receivable totaled $4,667,000 (net of allowance of $226,000) as of September 30, 2005 and $6,091,000 (net of allowance of $415,000) as of December 31, 2004 and are included in our consolidated balance sheets. Net loss from discontinued operations was $2,166,000 and $4,045,000 for the three and nine months ended September 30, 2005, respectively. Net loss from discontinued operations was $5,307,000 and $7,612,000 for the three and nine months ended September 30, 2004, respectively. Net revenues from discontinued operations were $7,334,000 and $23,203,000 for the three and nine months ended September 30, 2005, respectively. Net revenues from discontinued operations were $7,609,000 and $24,880,000 for the three and nine months ended September 30, 2004, respectively.

Liquidity and Capital Resources

We anticipate having sufficient unrestricted cash on hand to make the December 1, 2005 interest payment on our Notes. Absent changes to our capital structure and station ownership mix we will not have enough liquidity to service our existing obligations over the next twelve months. In order to improve our existing liquidity position and to further our business strategy, we entered into separate definitive agreements to sell our two WB affiliates (as discussed in the following paragraph) and are currently exploring additional changes in our station ownership mix and the raising of additional capital. However, under our Indenture, our use of the net proceeds from the sale of assets is restricted. Of the net proceeds received in an asset sale, $5 million may be used for working capital purposes and the remainder must be used to either:

• to make an investment in properties and assets that replace the properties and assets that were the subject of such asset to make an investment in properties and assets that replace the properties and assets that were the subject of such asset sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto (“Replacement Assets”) or to finance, directly or indirectly, a Permitted Business Acquisition or enter into a definitive agreement to effectuate such acquisition; provided that (A) the primary purpose of such acquisition of Replacement Assets or Permitted Business Acquisition is to acquire, and there is acquired, a television station with a Big-4 (ABC, CBS, NBC or Fox) network affiliation agreement in place or the creation (through ownership by the Company and its Restricted Subsidiaries) of a “duopoly” in a market and (B) that the Company shall use all reasonable best efforts to promptly dispose of any other assets acquired in such acquisition or Permitted Business Acquisition (as such terms are defined in the Indenture); or

On September 8, 2005, we reached separate definitive agreements to sell our two WB affiliates, KBWB-TV serving San Francisco, California and WDWB-TV serving Detroit, Michigan to affiliates of AM Media Holdings, LLC. The agreements contain covenants by us not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by us for the sale of KBWB-TV is $72,500,000, before closing adjustments, which is payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by us for the sale of WDWB-TV is $87,500,000, before closing adjustments, which is payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively.

We anticipate that we will retain approximately $30 million of the aggregate proceeds from the transactions to be used for working capital purposes, consisting of $5 million per asset sale as permitted under our Indenture and $10 million for each covenant not to compete. The remaining net proceeds, after closing adjustments, will be used to make investments in property or assets that replace the property and assets that were subject of such asset sale and/or make an offer to all of the holders of the Notes. We anticipate both transactions, each of which is subject to customary closing conditions, to close in the fourth quarter of 2005. In addition, we continue to explore the raising of additional capital and changes in our station ownership mix.

Assuming we are successful in selling KBWB-TV and WDWB-TV and / or raising additional capital, we believe that the available proceeds together with the cash and cash equivalents on hand and internally generated funds from operations will be sufficient to satisfy our cash requirements for our existing operations for the next twelve months. There can be no assurance that we will be successful in selling assets and raising additional capital and a lack of liquidity would have a material adverse effect on our business strategy and therefore affect our ability to continue as a going concern. The 2005 quarterly financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As of September 30, 2005, we had approximately $21,997,000 of cash and cash equivalents on hand, which excludes $24,997,500 in U.S. Government Securities which is pledged to support the reimbursement obligations in the event of a draw on the letter of credit that serves as collateral for the Term Loan A under Malara Broadcast Group’s Senior Credit Facility, which is described below and is restricted and not available for working capital or any other purposes. To the extent that principal payments are made on the Term Loan A, the letter of credit shall be proportionately reduced and we shall be permitted to proportionately reduce the amount of the U.S. Government Securities pledged against the letter of credit. At September 30, 2005, the restricted U.S. Government Securities totaled $24,997,500.

We have established an investment policy for investing cash that is not immediately required for working capital purposes. Our investment objectives are to preserve capital, maximize our return on investment and to ensure we have appropriate liquidity for our cash needs. The investments are considered to be available-for-sale as defined under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of September 30, 2005, we had approximately $21,977,000 of cash and cash equivalents (which excludes $24,997,500 of restricted U.S. Government Securities cash equivalents). As of September 30, 2005, we have no marketable securities.

Net cash used in operating activities was $11,552,000 during the nine months ended September 30, 2005 compared to $3,454,000 during the nine months ended September 30, 2004. The change in 2005 from 2004 was primarily due to the receipt of a $16,000,000 income tax refund during June 2004 and changes in net assets.

Net cash used in investing activities was $77,895,000 during the nine months ended September 30, 2005 compared to $10,322,000 during the nine months ended September 30, 2004. The change in 2005 from 2004 was primarily due to the acquisition of assets and the purchase of U.S. Government Securities during March 2005, offset by a reduction in capital expenditures due to the completion of our conversion to digital technology.

Net cash provided by financing activities was $50,566,000 during the nine months ended September 30, 2005 compared to net cash used in financing activities of $226,000 during the nine months ended September 30, 2004. The change in 2005 from 2004 is primarily due to the proceeds from the Malara Broadcast Group Senior Credit Facility, offset in part by increased payments of deferred financing fees.

Our 9 3/4 % Senior Secured Notes

On December 22, 2003, we completed a $405,000,000 offering of our 9 3/4 % Senior Secured Notes (the “Notes”) due December 1, 2010, at a discount, resulting in proceeds to us of $400,067,100. Interest on the Notes is payable on December 1 and June 1 of each year, which commenced on June 1, 2004. We used the net proceeds from the offering in part to (i) repay all outstanding borrowings, plus accrued interest, under our senior credit agreement, (ii) redeem at par, plus accrued interest, all of our 9 3/8 % and 10 3/8 % senior subordinated notes due May and December 2005, respectively, and (iii) to repurchase at par, plus accrued interest, all of our 8 7/8 % senior subordinated notes due May 2008. The remaining proceeds were invested in short-term securities as well as being used for general working capital purposes.

The Notes are guaranteed by each of our domestic restricted subsidiaries and are secured by substantially all of our assets. We may redeem some or all of the Notes at any time on or after December 1, 2006. We may also redeem up to 35% of the aggregate principal amount of the Notes using the proceeds of one or more equity offerings on or before December 1, 2005.

The Indenture, which governs our Notes, restricts our ability and the ability of our restricted subsidiaries to, among other things: (i) incur additional debt and issue preferred stock; (ii) make certain distributions, investments and other restricted payments; (iii) create certain liens; (iv) enter into transactions with affiliates; (v) enter into agreements that restrict our restricted subsidiaries from making payments to us; (vi) merge, consolidate or sell substantially all of our assets; (vii) sell or acquire assets; and (viii) enter into new lines of business.

Under the Indenture, the Malara Broadcast Group companies to which we provides services pursuant to the local services agreements are subject to the terms of the Indenture applicable to Restricted Subsidiaries that are not Guarantors, as such terms are defined in the Indenture.

Malara Broadcast Group’s Senior Credit Facility

obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, we pledged $25 million of U.S. Government Securities. The $25 million Malara Broadcast Group Term Loan B and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by Granite Broadcasting Corporation pursuant to a guaranty agreement (the “Granite Guaranty”).

and (ix) change the nature of its business and the business conducted by its subsidiaries. Malara Broadcast Group is also required to comply with financial covenants with respect to a minimum interest coverage ratio, minimum consolidated available cash flow, a maximum leverage ratio and minimum consolidated net revenue and limits on capital expenditures.

Interest rates associated with the Term Loan A are based, at Malara Broadcast Group’s option, at either (i) the higher of the Prime Rate or the Federal Funds Effective Rate plus 0.50% (the “Base Rate”) or (ii) the Adjusted Eurodollar Rate plus 0.60% per annum, as such terms are defined in the Malara Broadcast Group Senior Credit Facility. Interest rates associated with the Term Loan B and Revolving Loan are based, at Malara Broadcast Group’s option, on either (i) the Base Rate plus 4.625% per annum or (ii) the Adjusted Eurodollar Rate plus 7.375% per annum. In addition, Deferred Interest (as defined in the Malara Broadcast Group Senior Credit Facility) accrues with respect to, and is added to the principal amount of, the Term Loan B and Revolving Loan at a rate of 3% per annum. Additionally, Malara Broadcast Group is required to pay monthly commitment fees on the unused portion of its revolving loan commitment at a rate of 0.50% per annum. Cash interest payments are payable monthly.

Malara Broadcast Group is required to make monthly principal payments on the Term Loan A and the Revolving Loan equal to the product of (i) the Repayment Percentage (which is 25% unless there is an Event of Default or the Consolidated Loan to Stick Value is less than 70%, in which case the Repayment Percentage is 100%) and (ii) the Consolidated Excess Free Cash Flow for the month preceding the month in which such installment is due, as such terms are defined in the Malara Broadcast Group Senior Credit Facility. All such payments shall be applied first to repay the outstanding Revolving Loan to the full extent thereof (without a corresponding reduction in the Revolving Loan Commitment Amount) and second to repay the outstanding Term Loan A to the full extent thereof; provided that, if the Repayment Percentage for such monthly installment is 100%, the excess 75% of such monthly installment shall be applied first to repay the outstanding Revolving Loan to the full extent thereof and second to repay the outstanding Term Loan B to the full extent thereof. For the three and nine months ended September 30, 2005, the total principal payments made on the Revolving Loan approximated $309,000 and $692,000, respectively.

Our 12 3/4 % Cumulative Exchangeable Preferred Stock

Under the terms of the Certificate of Designations for our 12 3/4 % Cumulative Exchangeable Preferred Stock (the “Preferred Stock”), we were required to make the semi-annual dividends on such shares in cash beginning October 1, 2002. The cash payment of dividends had been restricted by the terms of our previous senior credit agreement and indentures and is prohibited under the Indenture, which governs our Notes. Consequently we have not paid the semi-annual dividend due to the holders since October 1, 2002. During the three and nine months ended September 30, 2005 a dividend payment of $6,386,961 and $19,160,883, respectively, accrued on our Preferred Stock. As of September 30, 2005, we have recorded an aggregate of $89,417,456 in accrued dividends on our Preferred Stock. Since three or more semi-annual dividend payments have not been paid, the holders of the Preferred Stock have the right to elect the lesser of two directors or that number of directors constituting 25% of the members of the Board of Directors. Effective October 24, 2005, the holders of the majority of the Preferred Stock exercised their right to elect two directors to the Board of Directors of the Company. We are restricted from paying cash dividends under the Indenture, which governs our Notes, and do not anticipate paying cash dividends on our Preferred Stock in the foreseeable future.

Film Payments

As part of an overall effort to reduce station operating expenses, we have made substantial progress replacing unprofitable programming with competitive, profitable programming.

Film payments from our continuing operations for the three and nine months ended September 30, 2005 totaled $1.6 million and $4.6 million, respectively, as compared to the three and nine months ended September 30, 2004 totaling $1.3 million and $3.9 million, respectively. Film payments for the year ended December 31, 2005 will approximate $6.1 million as compare to $5.3 million at December 31, 2004. The increase in film payments from our continuing operations is related to the two additional television stations, WISE-TV, which we acquired in March 2005 and KDLH-TV, which was acquired by Malara Broadcast Group in March 2005. Based on completed negotiations and current market conditions for the purchase of programming, we expect annual film payments to continue to decline based on a same station basis.

Film payments from our discontinued operations for the three and nine months ended September 30, 2005 totaled $2.9 million and $11.2 million, respectively, as compared to the three and nine months ended September 30, 2004 totaling $4.6 million and $14.3 million, respectively. Film payments for the year ended December 31, 2005 will approximate $16.5 million as compare to $18.8 million for the year ended December 31, 2004.

No Off-Balance Sheet Arrangements

At September 30, 2005 and 2004 we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with Malara Broadcast Group are on-balance sheet arrangements.

Capital and Commercial Commitments

The following table and discussion reflect our significant contractual obligations and other commercial commitments related to continuing operations as of September 30, 2005:

	Payment Due by Period
Capital Commitment	Total		Remainder of 2005		2006 - 2007		2008 - 2009		Thereafter

9 3/4% Senior Secured Notes due 2010	$	405,000,000	$	—	$	—	$	—	$	405,000,000
Interest on Senior Secured Notes	213,891,000		19,744,000		78,975,000		78,975,000		36,197,000
Malara Broadcast Group Senior Credit Facility (b)	53,322,000		907,000		6,615,000		10,333,000		35,467,000
Interest on Senior Credit Facility (c)	17,045,000		1,128,000		8,467,000		7,128,000		322,000
Program contract commitments - current	5,253,000		2,145,000		3,034,000		74,000		—
Program contract commitments – future (d)	17,787,000		163,000		6,128,000		8,318,000		3,178,000
Operating leases	2,938,000		159,000		1,098,000		994,000		687,000
12 3/4% Cumulative Exchangeable Preferred Stock, including accrued dividends (a)	377,670,000		—		—		377,670,000		—
Restructuring and severance			313,000		192,000		—		—

Total capital and commercial commitments	$	1,093,411,000	$	24,559,000	$	104,509,000	$	483,492,000	$	480,851,000

(a) As of September 30, 2005, the Cumulative Exchangeable Preferred Stock, including accrued dividends totaled $288,520,000. The table above includes the balance as of September 30, 2005 and the expected accrued dividends through April 2009, the date of redemption. Payment of cash dividends are restricted by the terms of the Indenture, which governs our existing Senior Secured Notes.

(b) The amounts are our estimates of required cash payments under the Malara Senior Credit Facility. The Malara Senior Credit Facility consists of a revolver and two term loans. The required amortization under the revolver and one of the term loans is calculated based upon Malara’s station performance; therefore, actual required amortization may vary from our estimates above. The remaining term loan has a fixed amortization schedule, and such amounts are included above.

(c) The amounts are our estimates of required interest payments under the Malara Senior Credit Facility. The actual interest payments may vary based upon the actual required amortization payments of the Senior Credit Facility (see (b) above).

(d) Program contract commitments – future reflect a license agreement for program material that is not yet available for its first broadcast and is therefore not recorded as an asset or liability on our consolidated balance sheet in accordance with the provisions of Statement of Financial Accounting Standards No. 63, Financial Reporting for Broadcasters.

The following table and discussion reflect our significant contractual obligations and other commercial commitments related to discontinued operations as of September 30, 2005:

	Payment Due by Period
Capital Commitment	Total		Remainder of 2005		2006 - 2007		2008 - 2009		Thereafter

Program contract commitments - current	$	29,296,000	$	8,708,000	$	16,977,000	$	3,611,000	$	—
Program contract commitments – future (a)	26,269,000		—		4,716,000		11,330,000		10,223,000
WB Affiliation	5,900,000		1,057,000		4,843,000		—		—
Operating leases	10,084,000		338,000		2,229,000		2,330,000		5,187,000

Total capital and commercial commitments	$	71,549,000	$	10,103,000	$	28,765,000	$	17,271,000	$	15,410,000

(a) Program contract commitments – future reflect a license agreement for program material that is not yet available for its first broadcast and is therefore not recorded as an asset or liability on our consolidated balance sheet in accordance with the provisions of Statement of Financial Accounting Standards No. 63, Financial Reporting for Broadcasters.

Recent Accounting Pronouncements

In May 2005, FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections – a replacement of APB No. 20 and FASB Statement No. 3, or Statement 154. Statement 154 changes the requirements of accounting for and reporting a change in accounting principle and applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement, in the event that the accounting pronouncement does not include specific transition provisions. Statement 154 requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable. Statement 154 also requires that a change in the method of depreciation, amortization or depletion of long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. The guidance contained in APB Opinion No. 20, Accounting Changes for reporting the correction of an error was carried forward in Statement 154 without change. Statement 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In December 2004, FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, or Statement 123(R). Statement 123(R) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (i) equity instruments of the enterprise or (ii) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity

to recognize the grant-date fair-value expense of stock options or other equity based compensation issued to employees in the statement of operations. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, or APB 25. The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial position, results of operations or cash flows.

Statement 123(R) is effective for public companies that do not file as small business issuers as of the beginning of the first annual reporting period that begins after June 15, 2005. All public companies must use either the modified prospective or modified retrospective transition method. Early adoption of Statement 123(R) for interim or annual periods for which financial statements or interim reports have not been issued is encouraged but not required. We have not fully evaluated the impact, if any, of adopting this pronouncement which must be adopted in the first quarter of 2006, but we believe that the adoption of this Statement will not have a significant accounting impact.

Delaware		13-3458782
(State of Incorporation)		(I.R.S. Employer Identification No.)

Exhibit No.		Description of Exhibit

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)

32		Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)

		GRANITE BROADCASTING CORPORATION
		Registrant


Date:	November 10, 2005	/s/	W. DON CORNWELL
			(W. Don Cornwell)
			Chief Executive Officer


Date:	November 10, 2005	/s/	LAWRENCE I. WILLS
			(Lawrence I. Wills)
			Senior Vice President – Chief Financial Officer
			(Principal Financial Officer)

	/s/ W. DON CORNWELL
	W. Don Cornwell
	Chief Executive Officer


	/s/ LAWRENCE I. WILLS
	Lawrence I. Wills
	Chief Financial Officer

	/s/LAWRENCE I. WILLS
	Lawrence I. Wills
	Chief Financial Officer

GRANITE BROADCASTING CORPORATION

Critical Accounting Polices

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)