*Table
          of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-Q**




**(MARK
      ONE)**




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




**For
      the quarterly period ending September 30, 2008**





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




**For
      the transition period from** ______________ **to** ______________




**Commission
      File Number: 000-51418**




**Equity
      Media Holdings Corporation**


(Exact
      name of registrant as specified in its charter)





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




**One
      Shackleford Drive, Suite 400**


**Little
      Rock, Arkansas 72211**


(Address
      of principal executive offices, including zip code)


**(501) 219-2400**


(Registrant’s
      telephone number, including area code)




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


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





o Large
      accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller
      reporting company




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




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












*Table
        of Contents*






**EQUITY
      MEDIA HOLDINGS CORPORATION**


**INDEX**




Page**PART
                I – FINANCIAL INFORMATION**
            
            3Item 1.
                Financial Statements
            
            3Condensed
                Consolidated Balance Sheets — As of September 30,
                2008 (unaudited) and as of December 31, 2007
            
            3Condensed
                Consolidated Statements of Operations — For the
                Three and Nine Months Ended September 30, 2008 and 2007
                (unaudited)
            
            5Condensed
                Consolidated Statements of Cash Flows — For the Nine
                Months Ended September 30, 2008 and 2007 (unaudited)
            
            6Notes
                to Unaudited Condensed Consolidated Financial
                Statements
            
            7Item 2.
                Management’s Discussion and Analysis of
                Financial Condition and Results of Operations
            
            19Item 3.
                Quantitative and Qualitative Disclosures About
                Market Risk
            
            27Item 4.
                Controls and Procedures
            
            27**PART
                II – OTHER INFORMATION**
            
            28Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            28Item
                3. Defaults Upon Senior Securities
            
            28Item 6.
                Exhibits
            
            28Signatures
            
            29Exhibit Index
            
            30EX-31.1
                Section 302 Certification of
                CEOEX-31.2
                Section 302 Certification of
                CFOEX-32.1
                Section 906 Certification of
                CEOEX-32.2
                Section 906 Certification of
                CFO


*Table
          of Contents*


**PART
      I – FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**




**EQUITY
      MEDIA HOLDINGS CORPORATION**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




**September 30, 2008**
            
            **December 31, 2007****ASSETS**
            
            
            ***(Unaudited)*****Current
                assets**Cash
                and cash equivalents
            
            $
            762,134
            
            $
            634,314Restricted
                cash
            
            
            811
            
            
            4,162,567Certificate
                of deposit
            
            
            —
            
            
            112,107Trade
                accounts receivable, net of allowance for uncollectible
                accounts
            
            
            3,820,403
            
            
            3,514,635Program
                broadcast rights
            
            
            7,597,011
            
            
            6,921,465Assets
                held for sale
            
            
            —
            
            
            9,520,849Other
                current assets
            
            
            794,670
            
            
            321,434Prepaid
                expenses - related party
            
            
            —
            
            
            100,000Total
                current assets
            
            
            12,975,029
            
            
            25,287,371**Property
                and equipment**Land
                and improvements
            
            
            2,026,698
            
            
            2,017,698Buildings
            
            
            3,995,744
            
            
            3,956,229Broadcast
                equipment
            
            
            29,802,288
            
            
            29,174,079Transportation
                equipment
            
            
            301,857
            
            
            283,151Furniture
                and fixtures
            
            
            4,550,516
            
            
            4,422,527Construction
                in progress
            
            
            102,889
            
            
            163,71640,779,992
            
            
            40,017,400Accumulated
                depreciation
            
            
            (19,811,267
            )
            
            (16,350,882
            )Net
                property and equipment
            
            
            20,968,725
            
            
            23,666,518**Intangible
                assets**Indefinite-lived
                assets, netBroadcast
                licenses
            
            
            57,878,759
            
            
            66,498,347Goodwill
            
            
            1,740,282
            
            
            1,940,282Total
                indefinite-lived assets, net
            
            
            59,619,041
            
            
            68,438,629**Other
                assets**Broadcasting
                construction permits
            
            
            399,302
            
            
            885,665Program
                broadcast rights
            
            
            8,458,643
            
            
            4,001,625Investment
                in joint ventures
            
            
            435,085
            
            
            435,860Deposits
                and other assets
            
            
            107,588
            
            
            98,705Broadcasting
                station acquisition rights pursuant to assignment
                agreements
            
            
            156,000
            
            
            440,000Total
                other assets
            
            
            9,556,618
            
            
            5,861,855**Total
                assets**
            
            $
            103,119,413
            
            $
            123,254,373


3
 *Table
          of Contents*


**September 30,****2008**
              
              **December 31, 2007*****(Unaudited)*****LIABILITIES
                  AND STOCKHOLDERS’ (DEFICIT) EQUITY****Current
                  liabilities**Trade
                  accounts payable
              
              $
              6,404,935
              
              $
              3,644,475Due
                  to affiliates and related parties
              
              
              10,257,912
              
              
              2,509,480Lines
                  of credit
              
              
              991,771
              
              
              994,495Accrued
                  expenses and other liabilities
              
              
              2,697,198
              
              
              1,777,240Deposits
                  held for sales of broadcast licenses
              
              
              1,024,601
              
              
              1,024,601Deferred
                  revenue
              
              
              239,416
              
              
              271,728Current
                  portion of program broadcast rights obligations
              
              
              3,949,479
              
              
              2,094,741Current
                  portion of deferred barter revenue
              
              
              3,774,929
              
              
              4,393,637Note
                  payable to Univision
              
              
              15,000,000
              
              
              15,000,000Amounts
                  due to Luken Communications, LLC
              
              
              25,000,000
              
              
              —Current
                  portion of notes payable
              
              
              42,744,322
              
              
              52,233,322Current
                  portion of capital lease obligations
              
              
              44,959
              
              
              44,546Total
                  current liabilities
              
              
              112,129,522
              
              
              83,988,265**Non-current
                  liabilities**Notes
                  payable, net of current portion
              
              
              7,966,422
              
              
              8,996,705Capital
                  lease obligations, net of current portion
              
              
              110,166
              
              
              141,491Program
                  broadcast rights obligations, net of current portion
              
              
              5,610,522
              
              
              1,140,641Deferred
                  barter revenue, net of current portion
              
              
              1,996,076
              
              
              2,618,143Due
                  to affiliates and related parties
              
              
              896,009
              
              
              6,262Security
                  and other deposits
              
              
              213,500
              
              
              213,500Other
                  liabilities
              
              
              1,135,540
              
              
              556,795Total
                  non-current liabilities
              
              
              17,928,235
              
              
              13,673,537Commitments
                  and Contingencies
              
              
              —
              
              
              —Mandatorily
                  redeemable preferred stock — $.0001 par value; 25,000,000 shares
                  authorized; 2,050,519 issued and outstanding
              
              
              10,519,162
              
              
              10,519,162STOCKHOLDERS’
                  (DEFICIT) EQUITYCommon
                  stock — $.0001 par value; 100,000,000 shares authorized; 40,278,642 issued
                  and outstanding at September 30, 2008 and December 31,
                  2007
              
              
              4,028
              
              
              4,028Additional
                  paid-in-capital
              
              
              137,357,300
              
              
              136,217,425Accumulated
                  deficit
              
              
              (174,817,482
              )
              
              (121,146,692
              )(37,456,154
              )
              
              15,074,761Treasury
                  stock, at cost
              
              
              (1,352
              )
              
              (1,352
              )Total
                  stockholders’ (deficit) equity
              
              
              (37,457,506
              )
              
              15,073,409Total
                  liabilities and stockholders’ (deficit) equity
              
              $
              103,119,413
              
              $
              123,254,373




See
      Notes
      to Unaudited Condensed Consolidated Financial Statements


4
 *Table
          of Contents*





**EQUITY
      MEDIA HOLDINGS CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**





**Three Months ended**
              **September 30,**
            
            **Nine Months ended**
              **September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Broadcast
                Revenue**
            
            $
            7,092,517
            
            $
            7,508,138
            
            $
            22,856,190
            
            $
            21,296,813**Operating
                Expenses**Program,
                production & promotion
            
            
            4,377,143
            
            
            3,696,863
            
            
            14,613,526
            
            
            10,727,108Selling,
                general & administrative
            
            
            5,784,397
            
            
            7,271,801
            
            
            21,571,141
            
            
            21,476,927Selling,
                general & administrative – related party
            
            
            163,380
            
            
            199,796
            
            
            1,913,647
            
            
            802,529Impairment
                charge on broadcasting assets
            
            
            18,263,563
            
            
            —
            
            
            18,263,563
            
            
            —Management
                agreement settlement
            
            
            —
            
            
            —
            
            
            —
            
            
            8,000,000Depreciation
                & amortization
            
            
            1,041,719
            
            
            1,004,958
            
            
            3,123,125
            
            
            2,852,317Management
                fees – related party
            
            
            375,000
            
            
            375,000
            
            
            750,000
            
            
            1,172,581Rent
            
            
            657,496
            
            
            604,316
            
            
            2,029,606
            
            
            1,836,611Total
                operating expenses
            
            
            30,662,698
            
            
            13,152,734
            
            
            62,264,608
            
            
            46,868,073Loss
                from operations
            
            
            (23,570,181
            )
            
            (5,644,596
            )
            
            (39,408,418
            )
            
            (25,571,260
            )**Other
                income (expense)**Interest
                income
            
            
            7,369
            
            
            85,421
            
            
            33,245
            
            
            117,931Interest
                expense
            
            
            (1,929,770
            )
            
            (1,819,741
            )
            
            (7,947,776
            )
            
            (5,789,080
            )Interest
                expense – related party
            
            
            (4,964,157
            )
            
            (262,500
            )
            
            (5,795,157
            )
            
            (525,000
            )(Loss)
                gain on disposal and/or sale of assets
            
            
            (282,882
            )
            
            —
            
            
            (482,882
            )
            
            453,753Other
                income, net
            
            
            607,159
            
            
            212,324
            
            
            717,111
            
            
            482,175Losses
                from affiliates and joint ventures
            
            
            (166
            )
            
            (226,660
            )
            
            (775
            )
            
            (279,349
            )Total
                other (expense), net
            
            
            (6,562,447
            )
            
            (2,011,156
            )
            
            (13,476,234
            )
            
            (5,539,570
            )Loss
                before provision for income taxes
            
            
            (30,132,628
            )
            
            (7,655,752
            )
            
            (52,884,652
            )
            
            (31,110,830
            )Provision
                (benefit) for income taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Net
                loss**
            
            
            (30,132,628
            )
            
            (7,655,752
            )
            
            (52,884,652
            )
            
            (31,110,830
            )Preferred
                dividend
            
            
            (198,661
            )
            
            (185,598
            )
            
            (786,138
            )
            
            (12,506,140
            )**Net
                loss attributable to common shareholders**
            
            $
            (30,331,289
            )
            $
            (7,841,350
            )
            $
            (53,670,790
            )
            $
            (43,616,970
            )Weighted
                average number of common shares outstanding:Basic
                and diluted
            
            
            40,278,382
            
            
            40,646,137
            
            
            40,278,382
            
            
            35,104,786Net
                loss attributable to common shareholders per share:Basic
                and diluted
            
            $
            (0.75
            )
            $
            (0.19
            )
            $
            (1.33
            )
            $
            (1.24
            )





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.


5
 *Table
          of Contents*


**EQUITY
      MEDIA HOLDINGS CORPORATION**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**


**Nine
                  Months Ended****September
                  30,****2008**
              
              **September
                  30,****2007****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (52,884,652
              )
              $
              (31,110,830
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Provision
                  for bad debt
              
              
              295,230
              
              
              1,030,315Impairment
                  charge on broadcasting assets
              
              
              18,263,563
              
              
              —Depreciation
              
              
              3,123,126
              
              
              2,811,832Amortization
                  of intangibles
              
              
              —
              
              
              40,485Amortization
                  of program broadcast rights
              
              
              8,787,472
              
              
              5,451,169Amortization
                  of discounts on interest-free debt
              
              
              —
              
              
              29,723Equity
                  in losses of subsidiaries and joint ventures
              
              
              775
              
              
              279,349Loss
                  (gain) on disposal and/or sale of assets
              
              
              (1,118
              )
              
              (453,753
              )(Gain)
                  loss on sale of intangibles
              
              
              484,000
              
              
              —Management
                  agreement settlement
              
              
              —
              
              
              4,800,000Share-based
                  compensation
              
              
              784,415
              
              
              1,658,678Changes
                  in operating assets and liabilities:Trade
                  accounts receivable
              
              
              (624,844
              )
              
              (852,699
              )Deposits
                  and other assets
              
              
              (234,054
              )
              
              (526,225
              )Restricted
                  cash
              
              
              4,161,757
              
              
              —Accounts
                  payable and accrued expenses
              
              
              4,818,857
              
              
              (75,397
              )Program
                  broadcast rights
              
              
              (13,920,116
              )
              
              (8,580,136
              )Program
                  broadcast obligations
              
              
              6,324,614
              
              
              1,285,043Deferred
                  barter revenue
              
              
              (1,240,705
              )
              
              1,525,259Security
                  deposits
              
              
              —
              
              
              (5,523
              )Deferred
                  income
              
              
              (32,312
              )
              
              (13,657
              )Net
                  cash used by operating activities
              
              
              (21,893,992
              )
              
              (22,706,367
              )**Cash
                  flows from investing activities:**Purchases
                  of property and equipment
              
              
              (38,657
              )
              
              (6,398,509
              )Proceeds
                  from sale of property and equipment
              
              
              11,635
              
              
              621,462Acquisition
                  of broadcast assets
              
              
              —
              
              
              (1,625,000
              )Restriction
                  of cash for acquisitions
              
              
              —
              
              
              (5,684,739
              )Proceeds
                  (purchase) of certificate of deposit
              
              
              112,107
              
              
              (2,482
              )Net
                  advances from (to) related parties and affiliates
              
              
              7,489,644
              
              
              517,585Net
                  cash provided by (used) in investing activities
              
              
              7,574,729
              
              
              (12,571,683
              )**Cash
                  flows from financing activities:**Proceeds
                  from notes payable
              
              
              58,982,502
              
              
              19,084,389Payments
                  of notes payable
              
              
              (69,504,508
              )
              
              (19,530,275
              )Payments
                  of capital lease obligations
              
              
              (30,911
              )
              
              (27,264
              )Proceeds
                  from Luken transactions
              
              
              25,000,000
              
              
              —Recapitalization
                  through merger
              
              
              —
              
              
              52,906,853Purchase
                  of preferred stock
              
              
              —
              
              
              (25,000,000
              )Issuance
                  of common stock in private placement
              
              
              —
              
              
              9,000,000Settlement
                  with dissenting shareholders
              
              
              —
              
              
              (368,410
              )Purchase
                  of common stock
              
              
              —
              
              
              (1,352
              )Net
                  cash provided by financing activities
              
              
              14,447,083
              
              
              36,063,941**Net
                  increase in cash and cash equivalents**
              
              
              127,820
              
              
              785,891Cash
                  and cash equivalents — beginning of period
              
              
              634,314
              
              
              1,630,973Cash
                  and cash equivalents — end of period
              
              $
              762,134
              
              $
              2,416,864Supplemental
                  cash flow information:Cash
                  paid during the period for interest
              
              $
              8,260,144
              
              $
              5,196,589Supplemental
                  non-cash activities:Issuance
                  of note payable to redeem preferred stock
              
              $
              —
              
              $
              15,000,000Distribution
                  to converting shareholders
              
              $
              —
              
              $
              10,899,882Issuance
                  of mandatory redeemable preferred stock to pay accrued preferred
                  dividends
              
              $
              —
              
              $
              10,519,162Assumption
                  of net liabilities of Coconut Palm Acquisition Corporation
              
              $
              —
              
              $
              (2,267,340
              )Issuance
                  of common stock to pay preferred dividends
              
              $
              —
              
              $
              1,615,781Charge
                  to stockholders’ equity for prepaid merger costs
              
              $
              —
              
              $
              953,223Issuance
                  of common stock to retire debt
              
              $
              —
              
              $
              500,000Acquisition
                  of real property through assumption of debt
              
              $
              —
              
              $
              205,347Accretion
                  of preferred dividends
              
              $
              578,743
              
              $
              371,197Preferred
                  dividend attributable to beneficial conversion
              
              $
              207,395
              
              $
              —





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements.




6
 *Table
          of Contents*





**EQUITY
      MEDIA HOLDINGS CORPORATION**


**NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**





**NOTE
      1 — BASIS OF PRESENTATION**





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





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




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





**NOTE
      2— GOING CONCERN, LIQUIDITY AND CAPITAL RESOURCES**




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




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





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


7
 *Table
          of Contents*


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





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





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





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





**NOTE
      3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**Adoption
      of New Accounting Standards**





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





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




**Recent
      Accounting Pronouncements**




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


8
 *Table
          of Contents*


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





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





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





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





**NOTE
      4 — TRANSACTIONS WITH LUKEN COMMUNICATIONS, LLC**





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




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




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


9
 *Table
          of Contents*





**Sale
      of RTN**




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





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




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





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




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





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





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





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





**Warrant
      Agreement**





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


10
 *Table
          of Contents*





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





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





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





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





**Stations
      Asset Purchase Agreements**





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


·
              Amarillo
                  (Texas),
 
 ·
                  Waco
                      (Texas),
 
 ·
              Fort
                  Myers/Naples (Florida),
 
 ·
              Minneapolis
                  (Minnesota),
 
 ·
              Oklahoma
                  City (Oklahoma), and
 
 ·
              Tulsa
                  (Oklahoma).




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


11
 *Table
          of Contents*





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




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




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




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





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





**Transaction
      Fee and Related Warrants issued to Investment Advisors**





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





**SEC
      filing**





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




**NOTE
      5 — ASSET PURCHASE AGREEMENTS**




**Purchase
      from Renard Communications Corp.**





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





**Other
      Agreements**





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





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





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


12
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          of Contents*





**NOTE
      6 — INTANGIBLE ASSETS**





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




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




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





**NOTE
      7 — NOTES PAYABLE**





**Long-Term
      Debt**





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




**September 30,**
              **2008**
            
            **December 31,**
              **2007****(**In thousands**)**Senior
                Credit Facility
            
            $
            40,062
            
            $
            50,317Luken
                Communications, LLC
            
            
            25,000
            
            
            —Merger
                Related Party - Univision
            
            
            15,000
            
            
            15,000Installment
                Notes and other debt
            
            
            10,649
            
            
            10,913Line
                of Credit
            
            
            992
            
            
            994Capital
                Lease Obligations
            
            
            155
            
            
            186Total
                Debt
            
            $
            91,858
            
            $
            77,410Less:
                Current maturities
            
            
            (83,781
            )
            
            (68,272
            )Long-term
                debt
            
            $
            8,077
            
            $
            9,138




**Senior
      Credit Facility**





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




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





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





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





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


13
 *Table
          of Contents*





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





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





**Merger
      Related - Univision**




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





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




**Installment
      notes and other debt**





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





**Line
      of Credit**





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





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





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





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




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





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


14
 *Table
          of Contents*





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




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




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




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




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




**NOTE
      9 — STOCK OPTION PLANS**




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





**NOTE
      10 — CONTINGENCIES**





**Stock
      options to underwriters**




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





**Litigation**




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


15
 *Table
          of Contents*





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




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





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




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




**EBC
      Dissenting Shareholders**




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





**FCC
      Inquiry**





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





**NASDAQ**





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





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





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





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





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





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





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





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


16
 *Table
          of Contents*


**NOTE
      11 — RELATED PARTY TRANSACTIONS**




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




**September 30,**
              **2008**
            
            **December 31,**
              **2007**Univision Communications, Inc.
            
            $
            (3,650,475
            )
            $
            (2,295,837
            )Arkansas Media, LLC and affiliates
            
            
            5,741
            
            
            19,581Royal
                Palm Capital Management, LLP
            
            
            (1,250,000
            )
            
            (225,000
            )Little
                Rock TV 14, LLC
            
            
            (78,627
            )
            
            (78,626
            )Larry
                Morton
            
            
            (1,138,441
            )
            
            —Luken
                Communications, LLC
            
            
            (5,007,657
            )
            
            —Retro
                Television Network, Inc
            
            
            (34,462
            )
            
            (8,224
            )Other
            
            
            __
            
            
            72,364Due
                to affiliates and related parties
            
            
            (11,153,921
            )
            
            (2,515,742
            )Less
                current portion
            
            
            (10,257,912
            )
            
            (2,509,480
            )Non
                – current portion
            
            $
            (896,009
            )
            $
            (6,262
            )




***Larry
      Morton***





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





**NOTE
      12 - FAIR VALUE MEASUREMENTS**





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




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




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





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





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


17
 *Table
          of Contents*


**NOTE
      13 - SEGMENT DATA**





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




Three months ended September 30,
            
            Nine months ended September 30,**2008**
            
            **2007**
            
            **2008**
            
            **2007**(in thousands)
            
            (in thousands)**Broadcast
                Revenue**Television
            
            $
            6,012
            
            $
            7,480
            
            $
            20,746
            
            $
            21,126Retro
                Television Network
            
            
            885
            
            
            81
            
            
            1,806
            
            
            219Uplink
                Services
            
            
            196
            
            
            113
            
            
            622
            
            
            446Corporate
                and eliminations
            
            
            —
            
            
            (166
            )
            
            (318
            )
            
            (494
            )$
            7,093
            
            $
            7,508
            
            $
            22,856
            
            $
            21,297**Depreciation
                and amortization**Television
            
            $
            514
            
            $
            482
            
            $
            1,523
            
            $
            1,475Retro
                Television Network
            
            
            —
            
            
            —
            
            
            —
            
            
            —Uplink
                Services
            
            
            360
            
            
            356
            
            
            1,096
            
            
            924Corporate
                and eliminations
            
            
            167
            
            
            167
            
            
            504
            
            
            453$
            1,042
            
            $
            1,005
            
            $
            3,123
            
            $
            2,852**Segment operating loss**Television
            
            $
            (1,192
            )
            $
            (1,759
            )
            $
            (4,947
            )
            $
            (6,090
            )Retro
                Television Network
            
            
            (1,446
            )
            
            (387
            )
            
            (4,457
            )
            
            (929
            )Uplink
                Services
            
            
            (203
            )
            
            (383
            )
            
            (680
            )
            
            (1,017
            )Corporate
                and eliminations
            
            
            (2,466
            )
            
            (3,117
            )
            
            (11,061
            )
            
            (17,535
            )**Consolidated**
            
            $
            (5,307
            )
            $
            (5,645
            )
            $
            (21,145
            )
            $
            (25,571
            )Impairment
                charge – Television
            
            
            (18,263
            )
            
            —
            
            
            (18,263
            )
            
            —**Operating
                loss**
            
            $
            (23,570
            )
            $
            (5,645
            )
            $
            (39,408
            )
            $
            (25,571
            )




**NOTE 14—
      SUBSEQUENT EVENTS**





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





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





DMA Ranking
            
            Station
            
            DMA
            
            Launched60
            
            KTUL-DT
            
            Tulsa
            
            October
                6, 200812
            
            KAZT-DT
            
            Phoenix
            
            October
                13, 2008




**Management
      and Board Changes**





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




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





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




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




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




18
 *Table
            of Contents*




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





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





**Overview**




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





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




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





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





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





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





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





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




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




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





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




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


19
 *Table
          of Contents*





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




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




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




*Acquisition
      and Expansion Activity*





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





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





***Revenue***





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





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





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





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





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





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


20
 *Table
          of Contents*





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





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





***Results
      of Operations***





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





**For the Three Months Ended September 30**
            
            **For the Nine Months Ended September 30****2008**
            
            **2007**
            
            **Change**
            
            **%**
              **Change**
            
            **2008**
            
            **2007**
            
            **Change**
            
            **%**
              **Change****(In thousands, except percentages, net loss per share and weighted average shares)**Broadcast Revenue
            
            $
            7,093
            
            $
            7,508
            
            $
            (415
            )
            
            (5.5
            )
            $
            22,856
            
            $
            21,297
            
            $
            1,559
            
            
            7.3Program,
                production & promotion
            
            
            4,377
            
            
            3,697
            
            
            680
            
            
            18.4
            
            
            14,614
            
            
            10,727
            
            
            3,887
            
            
            36.2Selling,
                general & administrative
            
            
            6,324
            
            
            7,847
            
            
            (1,523
            )
            
            (19.4
            )
            
            24,234
            
            
            23,452
            
            
            782
            
            
            3.3Impairment
                charge on broadcasting assets
            
            
            18,263
            
            
            —
            
            
            18,263
            
            
            —
            
            
            18,263
            
            
            —
            
            
            18,263
            
            
            —Management
                agreement settlement
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,000
            
            
            (8,000
            )
            
            —Depreciation
                and amortization expense
            
            
            1,042
            
            
            1,005
            
            
            37
            
            
            3.7
            
            
            3,123
            
            
            2,852
            
            
            271
            
            
            9.5Rent
            
            
            657
            
            
            604
            
            
            53
            
            
            8.8
            
            
            2,030
            
            
            1,837
            
            
            193
            
            
            10.5Operating
                (loss)
            
            
            (23,570
            )
            
            (5,645
            )
            
            (17,925
            )
            
            (317.5
            )
            
            (39,408
            )
            
            (25,571
            )
            
            (13,837
            )
            
            54.1Interest
                income
            
            
            7
            
            
            85
            
            
            (78
            )
            
            (91.8
            )
            
            33
            
            
            118
            
            
            (85
            )
            
            (72.0
            )Interest
                Expense
            
            
            (6,894
            )
            
            (2,082
            )
            
            (4,812
            )
            
            231.1
            
            
            (13,743
            )
            
            (6,314
            )
            
            (7,429
            )
            
            117.7Gain
                on sale of assets
            
            
            (283
            )
            
            —
            
            
            (283
            )
            
            —
            
            
            (483
            )
            
            454
            
            
            (937
            )
            
            (206.4
            )Other
                income (expense), net
            
            
            608
            
            
            (14
            )
            
            622
            
            
            (4442.9
            )
            
            716
            
            
            202
            
            
            514
            
            
            254.5(Loss)
                before income taxes
            
            
            (30,132
            )
            
            (7,656
            )
            
            (22,476
            )
            
            293.6
            
            
            (52,885
            )
            
            (31,111
            )
            
            (21,774
            )
            
            70.0Income
                taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net
                (loss)
            
            
            (30,132
            )
            
            (7,656
            )
            
            (22,476
            )
            
            293.6
            
            
            (52,885
            )
            
            (31,111
            )
            
            (21,774
            )
            
            70.0Preferred
                dividend
            
            
            (199
            )
            
            (185
            )
            
            (14
            )
            
            7.6
            
            
            (786
            )
            
            (12,506
            )
            
            11,720
            
            
            (93.7
            )Net
                loss available to common shareholders
            
            $
            (30,331
            )
            $
            (7,841
            )
            $
            (22,490
            )
            
            286.8
            
            $
            (53,671
            )
            $
            (43,617
            )
            $
            (10,054
            )
            
            23.0Basic
                net (loss) per common share
            
            $
            (0.75
            )
            $
            (0.19
            )
            $
            (0.56
            )
            
            
            
            $
            (1.33
            )
            $
            (1.24
            )
            $
            (0.09
            )Basic
                shares used in earnings per share calculation
            
            
            40,278,382
            
            
            40,646,137
            
            
            
            
            
            
            
            
            40,278,382
            
            
            35,104,786




***Program,
      production and promotion expenses***





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





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


21
 *Table
          of Contents*


***Selling,
      general and administrative***





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





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





***Impairment
      Charge on Broadcasting Assets***





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





***Management
      Settlement Agreement***





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





***Depreciation
      and Amortization***





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





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





***Rent***





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





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





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





***Interest
      Expense, net***





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


22
 *Table
          of Contents*





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





***Loss
      on sale of assets***





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





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





***Other
      income, net***





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





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




**Liquidity
      and Capital Resources**




***General***


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




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




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




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




23
 *Table
          of Contents*




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





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





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





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





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





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





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





***Sources
      and Uses of Cash***





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


24
 *Table
          of Contents*





*Operating
      Activities*





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




*Investing
      Activities*




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




*Financing
      Activities*




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





***Debt
      Instruments and Related Covenants***





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




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




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





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


25
 *Table
          of Contents*





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





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




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





**Off-Balance
      Sheet Arrangements**





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




**Critical
      Accounting Policies and Estimates**





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





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





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





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




**Recent
      Accounting Pronouncements**





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





**Forward-Looking
      Statements**





This
      Quarterly Report on Form 10-Q includes forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and Section
      21E of the Securities Exchange Act of 1934, as amended. We have based these
      forward-looking statements on our current expectations and projections about
      future events. These forward-looking statements are subject to known and unknown
      risks, uncertainties and assumptions about us that may cause our actual results,
      levels of activity, performance or achievements to be materially different
      from
      any future results, levels of activity, performance or achievements expressed
      or
      implied by such forward-looking statements. In some cases, you can identify
      forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or
      the negative of such terms or other similar expressions. Factors that might
      cause or contribute to such a discrepancy include, but are not limited to,
      those
      described in our other filings with the Securities and Exchange Commission,
      including our Annual Report on Form 10-K for the fiscal year ended December
      31,
      2007. The forward-looking statements included in this Quarterly Report are
      made
      only as of the date hereof. The Company undertakes no obligation to update
      such
      forward-looking statements to reflect subsequent events or circumstances, except
      as required by law.


26
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**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





***General***





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





***Interest
      Rates***





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





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




**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      and Disclosure of Controls and Procedures**





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





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





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





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





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





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





**Changes
      in Internal Control Over Financial Reporting**





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


27
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          of Contents*





**PART
      II – OTHER INFORMATION**




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





***Sale
      of Stock Warrants***





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





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




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





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





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





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




**ITEM
      6. EXHIBITS**





Exhibits31.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, As Adopted Pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, As Adopted Pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(b) or 15d-14(b)
                and 18
                U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(b) or 15d-14(b)
                and 18
                U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.


28
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          of Contents*





**SIGNATURES**




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





**EQUITY
                MEDIA HOLDINGS CORPORATION**Date:
                November 19, 2008
            By:
            /s/
                John OxendineChief
                Executive Officer**(principal
                executive officer)**Date:
                November 19, 2008
            By:
            /s/
                Patrick DoranChief
                Financial Officer**(principal
                financial and accounting officer)**


29
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          of Contents*





**EXHIBIT
      INDEX**





31.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, As Adopted Pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
                of the
                Securities Exchange Act of 1934, As Adopted Pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(b) or 15d-14(b)
                and 18
                U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of Chief Financial Officer Pursuant to Rule 13a-14(b) or 15d-14(b)
                and 18
                U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002. 30