GRANITE BROADCASTING CORPORATION

Form 10-K

Table of Contents

			Page
PART I			4

	Item 1.	Business	4
	Item 1A.	Risk Factors	21
	Item 1B.	Unresolved Staff Comments	27
	Item 2.	Properties	28
	Item 3.	Legal Proceedings	29
	Item 4.	Submission of Matters to a Vote of Security Holders	29

PART II			30

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
	Item 6.	Selected Financial Data	30
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	33
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 8.	Consolidated Financial Statements and Supplementary Data	48
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	76
	Item 9A.	Controls and Procedures	76
	Item 9B.	Other Information	76

PART III			77

	Item 10.	Directors and Executive Officers of the Registrant	77
	Item 11.	Executive Compensation	80
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
	Item 13.	Certain Relationships and Related Transactions	89
	Item 14.	Principal Accountant Fees and Services	90

PART IV			91

	Item 15.	Exhibits and Financial Statement Schedules	91

SIGNATURES

Granite Broadcasting Corporation was incorporated in 1988 under the laws of the State of Delaware. As used in this Annual Report on Form 10-K and unless the context otherwise requires, (1) ”Granite,” the “Company,” “we,” “us” and “our” refer to Granite Broadcasting Corporation, together with its direct and indirect subsidiaries, (2) ”Malara Broadcast Group” and “Malara” refer to Malara Broadcast Group, Inc., together with its direct and indirect subsidiaries, and (3) “Four Seasons Broadcast Company” and “Four Seasons” refer to Four Seasons Broadcast Company, together with its direct and indirect subsidiaries. Our principal executive offices are located at 767 Third Avenue, 34th Floor, New York, NY 10017, and our telephone number at that address is (212) 826-2530. Our web site is located at http://www.granitetv.com. The information on our web site is not part of this report.

As of March 8, 2005, we have shared services agreements and advertising representation agreements (which we generally refer to as local service agreements) relating to the two television stations owned by Malara Broadcast Group, but do not own any of the equity interests in Malara Broadcast Group. For a description of the relationship between us and Malara Broadcast Group, see Item 1. “Business—Recent Developments.”

As of September 1, 2005, we have local service agreements relating to one television station owned by Four Seasons Broadcast Company, but do not own any of the equity interests in Four Seasons Broadcast Company. For a description of the relationship between us and Four Seasons Broadcast Company, see Item 1. “Business—Recent Developments.”

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Any statements that are included or incorporated by reference in this report or that are otherwise attributable to us or persons acting on our behalf, other than statements of historical fact, which address activities, events or developments that we expect or anticipate will or may occur in the future, including, without limitation, statements regarding expected financial performance; future capital expenditures; projected revenue growth or synergies resulting from acquisitions and other transactions; anticipated completion of sales of assets under contracts of sale; efforts to control or reduce costs; contingent liabilities; development or purchase of new programming; financing and restructuring efforts; expected competition; use of digital spectrum; and business strategy, are “forward-looking statements”—that is, statements related to future, not past, events that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “believe”, “project”, “target”, “predict”, “estimate”, “forecast”, “strategy”, “may”, “goal”, “expect”, “anticipate”, “intend”, “plan”, “foresee”, “likely”, “will”, “should” or other similar words or phrases. Although we believe such statements are based on reasonable assumptions, actual outcomes and results may differ materially from those projected. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, those factors described under Item 1A. “Risk Factors” and elsewhere in this report and the following factors:

• inability to implement our strategy, or, having implemented it, failure to realize anticipated cost savings or revenue opportunities available through implementation of our strategy;

• inability to effect dispositions or acquisitions of television stations, which are an important part of our strategy;

• the effects of governmental regulation of broadcasting, including adverse changes in, or interpretations of, the exceptions to the Federal Communications Commission’s duopoly rule which could restrict, or eliminate, our ability to enter into operating arrangements with in-market television stations and implement our operating strategy;

• pricing fluctuations in national and local advertising;

• volatility or increases in programming costs;

• restrictions on our operations due to, and the effect of, our significant leverage and limited sources of liquidity;

• the impact of changes in national and regional economies;

• delay in any economic recovery or the recovery not being as robust as might otherwise have been anticipated;

• our ability to service our outstanding debt;

• successful integration of acquired television stations (including achievement of synergies and cost reductions);

• successful results of local services arrangements with Malara Broadcast Group stations in Fort Wayne, Indiana and Duluth, Minnesota;

• an extraordinary, newsworthy event, including hostilities or terrorist attack;

• competition in the markets in which the stations we own and the stations to which we provide services are located;

• loss of network affiliations or changes in the terms of network affiliation agreements upon renewal; and

• technological change and innovation in the broadcasting industry.

We undertake no obligation to update forward-looking statements, whether as a result of new information, future developments or otherwise, and disclaim any obligation to do so.

AVAILABLE INFORMATION

We make available free of charge, on or through the SEC Filings section of our web site (http://www.granitetv.com/), our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. All such filings on our website are available free of charge. Unless we are required to do so by law the Company assumes no obligation to update or revise any forward-looking statements in this annual report on Form 10-K, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business

We are a television broadcasting company, focused on developing and operating small to middle-market television broadcast stations in the United States. We presently own and operate six middle-market stations and, since March 8, 2005, have shared services agreements and advertising representation agreements (which we generally refer to as local service agreements) to provide advertising, sales, promotion and administrative services, and selected programming to two additional stations owned by Malara Broadcast Group, all of which Granite and Malara stations are affiliated with either ABC, NBC or CBS, our Big Three Affiliates. As of December 31, 2005, we owned two stations affiliated with the Warner Brothers Television Network, or WB Network, which were under contract to be disposed of by sale to third parties. However, the unexpected decision by the WB Network to no longer provide programming to current WB affiliates effective in September 2006 has made sales of those stations on an acceptable basis much less certain at the current time. Since September 1, 2005, we have had local service agreements to provide advertising, sales, promotion and administrative services to a station owned by Four Seasons Peoria, LLC, which is affiliated with UPN. As of March 15, 2006, in three of the six markets that we serve, we own, operate, program or provide sales and other services to more than one station. All of the Big Three Affiliates are leading providers of local news, weather and sports in their respective markets. All but one of the television stations we own are operated through separate wholly-owned subsidiaries.

The following table sets forth general information for each of the television stations that we own, operate, program or provide sales and other services to, as of December 31, 2005:

TV
Station

Market
Area

DMA
Rank(1)(2)

Network
Affiliation

Status(3)

Households(2)

Channel/
Frequency

Other
Commercial
Stations
in DMA (4)

KBWB-TV (5)

San Francisco - Oakland - San Jose, CA

O&O

2,356,000

20/UHF

WDWB-TV (5)

Detroit, MI

O&O

1,936,000

20/UHF

WKBW-TV

Buffalo, NY

ABC

O&O

644,000

7/VHF

KSEE-TV

Fresno- Visalia, CA

NBC

O&O

546,000

24/UHF

WTVH-TV

Syracuse, NY

CBS

O&O

398,000

5/VHF

WISE-TV (6)

Fort Wayne, IN

106

NBC

O&O

271,000

33/UHF

WPTA-TV (6) (7)

Fort Wayne, IN

106

ABC

LSA

271,000

21/UHF

WEEK-TV

Peoria - Bloomington, IL

117

NBC

O&O

242,000

25/UHF

WAOE(TV) (8)

Peoria - Bloomington, IL

117

UPN

LSA

242,000

59/UHF

KBJR-TV

Duluth, MN - Superior, WI

137

NBC

O&O

169,000

6/VHF

KDLH-TV (7)

Duluth, MN - Superior, WI

137

CBS

LSA

169,000

3/VHF

KRII(TV) (9)

Duluth, MN - Superior, WI

137

CBS

O&O

169,000

11/VHF

(1) “DMA rank” refers to the size of the television market or Designated Market Area (“DMA”) as defined by the A.C. Nielsen Company (“Nielsen”).

(2) Source: Nielsen Media Research (www.nielsenmedia.com). These DMA ranks are for the 2005-2006 television season which started on September 20, 2005.

(3) O&O refers to stations that we own and operate. LSA, or local service agreement, is the general term we use to refer to a contract under which we provide services to a station owned and/or operated by an independent third party. Local service agreements include shared services and advertising representation agreements. For further information regarding the LSAs to which we are party, see “Recent Developments.”

(4) “Other Commercial Stations” refers to television broadcast station and does not include non-commercial stations, public broadcasting stations, religious stations, cable program services or networks or stations other than that we own.

(5) On September 8, 2005, we entered into separate definitive agreements to sell KBWB-TV, UHF Channel 20, the WB affiliate serving San Francisco, California and WDWB-TV, UHF Channel 20, the WB affiliate serving Detroit, Michigan to affiliates of AM Media Holdings, LLC. However, the unexpected decision by the WB Network to no longer provide programming to current WB affiliates effective in September 2006 has made sales of those stations on an acceptable basis much less certain at the current time.

(6) On March 7, 2005, we sold WPTA-TV, UHF Channel 21, the ABC affiliate serving Fort Wayne, Indiana, to Malara. On March 8, 2005, we acquired WISE-TV, UHF Channel 33, the NBC affiliate serving Fort Wayne, Indiana, from New Vision Group, L.L.C.

(7) On March 8, 2005, we entered into a strategic arrangement with Malara Broadcast Group, under which we provide advertising sales, promotion and administrative services, and selected programming to Malara Broadcast Group-owned stations WPTA-TV and KDLH-TV in return for certain fees that are paid by Malara Broadcast Group to us.

(8) On September 1, 2005, we entered into a strategic arrangement with Four Seasons Broadcast Company, under which we will provide advertising sales, promotion and administrative services to Four Seasons Broadcast Company-owned station WAOE (TV) in return for certain fees that will be paid by Four Seasons Broadcast Company to us.

(9) KRII, Channel 11, Chisholm, Minnesota, is a satellite station that transmits the signal of KBJR into the northern section of the DMA. Although KRII predominantly rebroadcasts the KBJR signal, KRII broadcasts unique news and weather content, as well as certain commercials, separately to this region. KRII multicasts Weather Plus over one of KBJR’s digital streams. KBJR also broadcasts UPN programming on one of its digital streams, which programming is also carried in an analog format by certain of the cable systems in the Duluth, Minnesota-Superior, Wisconsin, DMA.

Recent Developments

On September 8, 2005, we entered into a definitive agreement (the “KBWB Purchase and Sale Agreement”) to sell substantially all of the assets of KBWB-TV, the WB affiliate serving the San Francisco, California television market, to AM Broadcasting KBWB, Inc. (the “KBWB Buyer”). In addition, on September 8, 2005, we entered into a definitive agreement (the “WDWB Purchase and Sale Agreement” and together with the KBWB Purchase and Sale Agreement, the “Purchase and Sale Agreements”) to sell substantially all of the assets of WDWB-TV, the WB affiliate serving the Detroit Michigan television market, to AM Broadcasting WDWB, Inc. (the “WDWB Buyer”). The Purchase and Sale Agreements contain covenants by us not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by us for the sale of KBWB-TV was $72,500,000, before closing adjustments, which was payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by us for the sale of WDWB-TV was $87,500,000, before closing adjustments, which was payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets was $10 million, respectively. As of December 31, 2005 the aggregate assets held for sale totaled $116,183,000 and the aggregate liabilities held for sale totaled $36,931,000. At December 31, 2004, the aggregate assets held for sale totaled $158,143,000 and the aggregate liabilities held for sale totaled $46,057,000. Pursuant to the agreements, we will retain the rights to the existing cash and cash equivalents as well as the accounts receivable which we will retain the rights to collect. Cash and cash equivalents totaled $520,000 as of December 31, 2005 and $649,000 as of December 31, 2004 is included in our consolidated balance sheets. Accounts receivable totaled $5,464,000 (net of allowance of $222,000) as of December 31, 2005 and $6,091,000 (net of allowance of $415,000) as of December 31, 2004 and are included in our consolidated balance sheets. Net loss from discontinued operations was $34,051,000, $24,003,000 and $12,693,000 for the years ended December 31, 2005, 2004 and 2003 respectively. Net revenues from discontinued operations were $31,457,000, $33,266,000 and $35,211,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The KBWB Buyer has advised us that as a result thereof, the KBWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between us and the KBWB Buyer about the transaction, we are actively engaging in dialogue with other potential buyers because we do not presently have an agreement in principle with the KBWB Buyer with respect to KBWB-TV. On February 14, 2006, we entered into an amendment (the “KBWB Amendment”) to the KBWB Purchase and Sale Agreement. Pursuant to the KBWB Amendment (i) Section 6.2 of the KBWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the KBWB Buyer and the Company each have the right to terminate the KBWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The WDWB Buyer has advised us that as a result of the WB Network announcement, the WDWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between us and the WDWB Buyer about the transaction, we are actively engaging in dialogue with other potential buyers because we do not presently have an agreement in principle with the WDWB Buyer with respect to WDWB-TV. On February 14, 2006, we entered into an amendment (the “WDWB Amendment”) to the WDWB Purchase and Sale Agreement. Pursuant to the WDWB Amendment (i) Section 6.2 of the WDWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the WDWB Buyer and the Company each have the right to terminate the WDWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

On September 1, 2005, we entered into a strategic arrangement with Four Seasons Broadcast Company, under which we will provide advertising sales, promotion and administrative services to Four Seasons Broadcast Company-owned station WAOE-TV, the UPN affiliate serving Peoria-Bloomington, Illinois, in return for certain fees that will be paid by Four Seasons Broadcast Company to us.

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

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

On March 8, 2005, we entered into a strategic arrangement with Malara Broadcast Group, under which we provide advertising sales, promotion and administrative services, and selected programming to Malara Broadcast Group-owned stations WPTA-TV and KDLH-TV in return for certain fees that are paid by Malara Broadcast Group to us.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of borrowings pursuant to a Malara Broadcast Group credit agreement (the “Malara Broadcast Group Senior Credit Facility”). The Malara Broadcast Group Senior Credit Facility provides for two term loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Tranche A Term Loan, which was secured by a letter of credit, was paid off February 10, 2006, as discussed below. The $25 million Malara Broadcast Group Tranche B Term Loan and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by Granite Broadcasting Corporation.

We do not own Malara Broadcast Group or its television stations. However, as a result of Granite Broadcasting Corporation’s guarantee of the obligations incurred under Malara Broadcast Group’s Senior Credit Facility with respect to the Tranche B Term Loan and the revolving loan and due to our arrangements under the local service agreements and put or call option agreements, under Generally Accepted Accounting Principles in the United States (“U.S. GAAP”), specifically, Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities (“Interpretation 46”) we are required to consolidate Malara Broadcast Group’s financial position, results of operations and cash flows as of December 31, 2004. As we will continue to consolidate WPTA-TV in accordance with the provisions of Interpretation 46, we will not account for the sale of assets of WPTA-TV to Malara Broadcast Group and no gain or loss will be recognized in the consolidated statements of operations.

On February 10, 2006, in accordance with the terms of the Malara Broadcast Group Senior Credit Facility, the letter of credit issued in March 2005 to support the $23.5 million Tranche A Term Loan was drawn upon in satisfaction of Malara Broadcast Group’s obligations to such lenders under the Malara Tranche A Term Loan following non-renewal of the letter of credit. We paid the reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities which had been pledged in support of such obligation.

Under a Reimbursement Agreement, dated as of March 8, 2005 (the “Reimbursement Agreement”), among the Company, Malara Broadcast Group and certain of Malara Broadcast Group’s subsidiaries (the “Malara Borrowers”), the Malara Borrowers agreed to repay us any amounts drawn on the letter of credit plus interest at a rate of 8% per annum. We reduced to $16.6 million the amount due from the Malara Borrowers to Granite under the Reimbursement Agreement.

On January 13, 2006, we and certain of our subsidiaries entered into a definitive agreement with Television Station Group Holdings, LLC and certain of its subsidiaries to purchase substantially all of the assets of WBNG-TV, Channel 12, the CBS-affiliated television station serving Binghamton and Elmira, New York, for $45 million in cash, subject to closing adjustments (the “WBNG Purchase and Sale Agreement”). As of February 8, 2006, the sellers have a right to terminate the WBNG Purchase and Sale Agreement because the sales of two stations affiliated with the WB Network were not completed as of such date. As of March 30, 2006, the sellers have not exercised their right to terminate the WBNG Purchase and Sale Agreement. On March 8, 2006, the application seeking consent to assign the WBNG-TV license to our subsidiary was granted by the Federal Communications Commission (“FCC”).

Operating Strategy

We seek to increase operating profitability through the following strategies:

Strategically realign station group. We actively seek strategic asset acquisitions and dispositions in order to increase net revenue. Ideally, these transactions will result in operating more than one television station in a market or geographic region, thereby enabling us to realize substantial near term cost savings and longer term revenue enhancements. Owning and/or providing services to more than one station in a market is expected to enable us to enhance our revenue share, broaden our audience share and achieve significant operating efficiencies through streamlining our overall cost structure in these markets. Through contractual agreements with Malara Broadcast Group, since March 8, 2005, we provide advertising, sales, promotion and administrative services, and selected programming to Malara Broadcast Group stations in two of our existing markets. Malara Broadcast Group is 100% owned by an independent third party. In order for both Malara Broadcast Group and us to continue to comply with Federal Communications Commission (“FCC”) regulations, Malara Broadcast Group must maintain complete control over its own stations, including ultimate control over all operations of the stations, such as programming, finances, and personnel. In addition, we continue to explore selling certain assets, including the WB stations which we believe have significant asset value due to their locations in the sixth and eleventh largest DMAs.

Emphasize local news, weather and sports. The television stations that we own, operate, program or provide sales and other services to provide high quality, locally produced news, weather and sports programming on the Big Three affiliated stations, with five of the Big Three affiliated stations ranked as the number 1 or number 2 news providers in their respective markets. The stations strong local news differentiates us from other media alternatives and helps to attract a loyal audience, which is appealing to advertisers. In addition, the cost of producing local news is generally lower than the cost of syndicated programming and incremental local news programming can be added with relatively small increases in operating costs.

Grow local revenues. The stations that we own employ highly skilled and experienced sales managers, with an average of 25 years of television advertising sales experience, who seek to increase local advertising revenue through creative and unique sales propositions that appeal to the needs of local advertisers. The commissioned sales teams consist of between 8 and 12 account executives per station who utilize a sophisticated inventory management system, conduct research and introduce special projects, all designed to develop new local business.

Implementing and maintaining cost controls. We emphasize strict control of station operating expenses through a detailed annual budgeting and monthly forecasting process. We also maintain tight control over staffing levels and capital expenditures. Through the normal course of maintaining and updating the stations’ technical operations and infrastructure, certain processes will be automated in order to reduce long term operating costs. During 2005, we continued to implement cost control initiatives at our stations and corporate office. We will continue our cost control initiatives during 2006, and we plan to continually monitor and review each location to ensure we maintain our cost controls. In developing the selection of syndicated programs, we evaluate a program’s cost and projected profitability and its potential relative to other programming alternatives. We anticipate our annual programming obligations to continue to decline on a same station basis.

The Stations and Markets

The stations that we own and the stations to which we provide services under local services agreements operate in geographically diverse markets, which minimize the impact of regional economic downturns. With respect to the stations we own, as of December 31, 2005, two stations are located in the west region (KBWB—San Francisco, California and KSEE—Fresno, California), four stations are located in the mid-west region (WDWB— Detroit, Michigan, WEEK—Peoria, Illinois, WISE—Fort Wayne, Indiana and KBJR—Duluth, Minnesota) and two stations are located in the northeast region (WKBW—Buffalo, New York and WTVH— Syracuse, New York). As of December 31, 2005, four of the eight stations we own are affiliated with NBC, one is affiliated with ABC, one is affiliated with CBS and two are affiliated with the WB Network which has announced that it will no longer provide programming to current WB affiliates effective in September 2006. All three of the stations to which we provide services under local services agreements are located in the mid-west region (WPTA-Fort Wayne, Indiana, KDLH-Duluth, Minnesota and WAOE- Peoria, Illinois). WPTA is affiliated with ABC, KDLH is affiliated with CBS and WAOE is affiliated with UPN.

Owned Stations. The following is a description of each of the television stations we own, as of December 31, 2005:

KBWB, San Francisco-Oakland-San Jose, California

KBWB, commenced broadcasting in 1968 and became a WB affiliate in 1995. On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. On September 8, 2005, we entered into a definitive agreement to sell KBWB to an affiliate of AM Media Holdings, LLC. However, the unexpected decision by the WB Network to no longer provide programming to current WB affiliates effective in September 2006 has made the sale of KBWB-TV on an acceptable basis much less certain at the current time. We acquired KBWB from Pacific FM, Incorporated in July 1998. San Francisco-Oakland-San Jose is currently the 6^th largest DMA in the country, comprising ten counties and approximately 2.4 million television households, according to Nielsen.

KBWB’s strength is in its ability to attract teens, young adults and families. A WB affiliate since 1995, KBWB’s prime time line up includes popular WB programs such as Gilmore Girls, Smallville, Everwood, 7th Heaven, Charmed, One Tree Hill and Reba. The station’s syndicated programming includes talk-relationship shows such as Jerry Springer and Blind Date and situation comedies such as My Wife & Kids, King of the Hill,, Home Improvement and Fresh Prince of Bel-Air. According to Jim, the hit ABC sitcom, joins the line-up in September 2006. In the fall 2006 KBWB will become a true independent serving the Bay Area. The station is in the process of creating a new station brand and prime time program schedule that will allow the station to thrive as an independent, to provide new flexibility for sponsorship and added value for advertisers, and to realize a significant increase in advertisement inventory.

The San Francisco-Oakland-San Jose DMA is one of the most ethnically diverse DMAs in the country and almost half of its population is under 35 years of age, the young demographic targeted in part by the WB Network. The Bay Area has the fourth highest Effective Buying Income, or EBI, with an average household EBI of $69,500, according to estimates provided by the BIA Investing in Television 2004 Market Report (the “BIA Report”). Studies show Bay Area residents have the third-highest discretionary income in the United States. The Bay Area economy is centered on apparel, banking and finance, biosciences, engineering and architecture, high technology, telecommunications, tourism, and wineries. Leading employers in the area include Safeway Supermarkets, Hewlett-Packard, Seagate Technology, The Gap, Intel, Chevron Texaco Corp., Oracle and Levi-Strauss. The Bay Area is also home to several universities, including the University of California Berkeley, San Francisco State University, San Jose State University, Stanford University, Santa Clara University, University of San Francisco and California State University East Bay.

WDWB, Detroit, Michigan

WDWB, commenced broadcasting in 1968 and is a WB affiliate. On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. We acquired WDWB from WXON-TV, Incorporated in January 1997. On September 8, 2005, we entered into a definitive agreement to sell WDWB to an affiliate of AM Media Holdings, LLC. However, the unexpected decision by the WB Network to no longer provide programming to current WB affiliates effective in September 2006 has made the sale of WDWB on an acceptable basis much less certain at the current time.

Detroit is currently the 11^th largest DMA in the country, comprising nine counties and approximately 1.9 million television households.

WDWB is a WB Network affiliate that targets an audience of young adults, teens and families with children. WDWB’s prime time line up includes popular WB programs such as 7^th Heaven, Everwood, Gilmore Girls, Smallville, One Tree Hill, Jack & Bobby, Charmed and Reba. The station’s syndicated programming includes prime time reality hit Fear Factor, relationship shows such as Blind Date, Cheaters and 5th Wheel, and situation comedies such as Will & Grace, Home Improvement, Cheers, Fresh Prince of Bel-Air and Who’s the Boss.

In October 2004, WDWB became the new broadcast home for the NBA World Champions, the Detroit Pistons. The multi-year deal includes game carriage, ancillary programs and specials, promotional opportunities and community affairs projects.

The Detroit DMA is an ethnically diverse DMA and almost half of its population is under 35 years of age, the same demographic that is targeted by the WB Network. Detroit ranks tenth in total EBI, with an average Detroit household EBI of $55,100, according to estimates provided in the BIA Report. Detroit also ranks third among the top ten DMAs in percentage of Households Using Television, or HUT. Well known as the home of the three major U.S. automobile manufacturers (General Motors, Ford and Daimler Chrysler), Detroit is also home to their advertising agencies (LCI Media, MindShare, and Pentamark/PHD/BBDO). The Detroit economy has increasingly diversified and headquarters many major companies, as well as 60 hospitals, two world-renowned medical research centers and over 35 institutions of higher education. A large number of influential advertising agencies serve these institutions, including Young & Rubicam, Doner, Maroch and Chiat/Day and, as a leading voice in the Detroit market, WDWB has a high degree of visibility with all of them.

WKBW, Buffalo, New York

WKBW commenced broadcasting in 1958 and is an ABC Network affiliate. We acquired WKBW from Queen City Broadcasting, Incorporated in June 1995.

Buffalo is currently the 49^th largest DMA in the country, comprising ten counties and approximately 644,000 television households.

WKBW has a strong news organization and broadcasts 6.5 hours of locally produced programming per weekday. The station’s morning show, “AM Buffalo” is the only locally produced program of its kind in the market and has been airing at 10 am for 25 years and is often the second most watched program in its time period. In September 2002, the station launched the market’s first locally produced information and entertainment program at 4:00 p.m. called “PM Buffalo” (formerly known as “Western New York Live”). The station’s syndicated programming includes shows such as Live with Regis and Kelly, Wheel of Fortune and Jeopardy. WKBW consistently achieves prime time ratings that are higher than the ABC prime time national average.

The Buffalo economy is centered on manufacturing, government, health services and financial services. The average household effective buying income, or EBI, in the DMA was $40,000 according to estimates provided in the BIA Report. Leading employers in the area include General Motors, Ford Motor Company, American Axle and Manufacturing, M&T Bank, HSBC Bank, Roswell Park Cancer Institute, Buffalo General Hospital, Tops Markets and Verizon.

KSEE, Fresno-Visalia, California

KSEE commenced broadcasting in 1953 and is an NBC affiliate. We acquired KSEE from Meredith Corporation in December 1993.

Fresno-Visalia is currently the 56^th largest DMA in the country, comprising six counties and approximately 546,000 television households.

KSEE is a strong news station which competitively battles and often surpasses long-time news leader KSFN, an ABC owned and operated station, in the key demographics. The Fresno broadcast market consists of nine over-the-air television stations which includes three Hispanic stations. KSEE broadcasts 5 hours of local news per weekday, including the market’s first locally produced 4:00 p.m. newscast, launched in September 2002. The station’s syndicated programming includes shows such as Dr. Phil and Inside Edition.

The Fresno-Visalia market is a diverse and growing populace which is expected to grow by 1.7% through 2008. Although agriculture is the backbone of the market, new business continues to expand to the market to take advantage of the growing population and the low cost of living for a major California city. No single employer or industry dominates the local economy. The average household EBI in the DMA was $40,571, according to estimates provided in the BIA Report. The Fresno-Visalia DMA is also the home of several universities, including California State University- Fresno.

WTVH, Syracuse, New York

WTVH commenced broadcasting in 1948 and is a CBS affiliate. We acquired WTVH from Meredith Corporation in December 1993.

Syracuse is currently the 76^th largest DMA in the country, comprising eight counties and approximately 398,000 television households. The station’s prime time programming generally ranks first or second in the adults’ 25-54 ratings category.

WTVH broadcasts 4.5 hours of locally produced programming per weekday. In addition, WTVH broadcasts 1.5 hours of news per day (7.5 hours per week) for WSYT (FOX) as part of a shared services agreement which will cease in April 2006. The station’s syndicated programming includes shows such as Martha Stewart, Wheel of Fortune and Jeopardy. WTVH is also the exclusive home in Syracuse of the NFL’s Buffalo Bills pre-season games and coaches shows.

The Syracuse economy is centered on manufacturing, education and health services, trade/transport/utilities and government. The average household EBI in the DMA was $40,800, according to estimates provided in the BIA Report. Leading employers located in the area include SUNY Health Science Center, Syracuse University, Wegmans, St. Joseph’s Hospital Health Center, Carrier Corporation, P&C Food Markets, Niagara Mohawk, Lockheed-Martin and Crouse Hospital. The Syracuse DMA is also the home of several universities, including Syracuse University, Cornell University, Colgate University and SUNY Oswego.

WISE, Fort Wayne, Indiana

WISE commenced broadcasting in 1953 and is an NBC affiliate. We acquired WISE from New Vision Television in March 2005.

Fort Wayne is currently the 105^th largest DMA in the country, comprising twelve counties and approximately 271,000 television households.

The station’s syndicated programming includes shows such as Live with Regis and Kelly,Ellen and in the fall 2006, Dr. Phil and Seinfeld.

The Fort Wayne economy is centered on manufacturing, healthcare, communications, insurance, financial services and aerospace. The average household EBI in the DMA was $45,100, according to estimates provided in the BIA Report. Leading employers located in the area include Lincoln National Life Insurance, General Electric, General Motors, Verizon, Dana, Uniroyal Goodrich and ITT Aerospace. Fort Wayne is also the home of several universities, including the joint campus of Indiana University and Purdue University at Fort Wayne. Two major hospital systems, Lutheran Health and Parkview Health, make Fort Wayne a regional medical center that serves four states.

WEEK, Peoria-Bloomington, Illinois

WEEK commenced broadcasting in 1953 and is an NBC affiliate. We acquired WEEK from Eagle Broadcasting Corporation in October 1988.

Peoria-Bloomington is currently the 117^th largest DMA in the country, comprising ten counties and approximately 242,000 television households. The station’s newscasts and prime time programming rank number 1 in the adults 25-54 ratings category.

WEEK is the perennial market news leader, broadcasting 4.5 hours of local news per weekday and ranking number one in every newscast and in every key time period. For nine of the last eleven years, the Illinois Broadcaster’s Association has named WEEK Station of the Year. The station’s syndicated programming includes shows such as Dr. Phil, Oprah, and Seinfeld.

The Peoria economy is centered on heavy equipment manufacturing and agriculture but has achieved diversification with the growth of service-based industries such as conventions, healthcare and telecommunications. Prominent corporations located in Peoria include Caterpillar, Central Illinois Light Company, Commonwealth Edison Company, Komatsu Mining Systems, and IBM. In addition, the United States Department of Agriculture’s second largest research facility is located in Peoria, and the area has become a major regional healthcare center.

The economy of Bloomington is focused on insurance, education, agriculture and manufacturing. Leading employers located in Bloomington include State Farm Insurance Company, Country Companies Insurance Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The Peoria-Bloomington area is also the home of numerous institutions of higher education including Bradley University, Illinois Central College, Illinois Wesleyan University, Illinois State University, Eureka College and the University of Illinois College of Medicine. The average household EBI in the DMA was $46,300, according to estimates provided in the BIA Report.

KBJR, Duluth, Minnesota-Superior, Wisconsin

KBJR commenced broadcasting in 1954 and is an NBC affiliate. We acquired KBJR from RJR Communications, Incorporated in October 1988.

Duluth, MN-Superior, WI is currently the 137^th largest DMA in the country, comprising twelve counties and approximately 169,000 television households. The station’s newscasts rank number 1 in every time period in total audience and in the key adults 25-54 ratings category. Prime time programming generally ranks higher than the average for NBC affiliates.

KBJR is a strong competitor in the market, broadcasting 4 hours of local news per weekday. The station’s syndicated programming includes shows such as The Tony Danza Show, Dr. Phil, Jeopardy and Wheel of Fortune. We also own Channel 11 License, Inc., the licensee of television station KRII, Channel 11, Chisholm, Minnesota, a satellite station that transmits the signal of KBJR into the northern section of the DMA. Although KRII predominantly rebroadcasts the KBJR signal, KRII broadcasts unique news and weather content, as well as certain commercials, separately to this region. KBJR also airs United Paramount Networks, or UPN, programming over its DTV signal that is carried by virtually all cable operators in the DMA.

The area’s primary industries include mining, fishing, food products, paper, medical, shipping, tourism and timber. The average household EBI in the DMA was $37,900, according to estimates provided in the BIA Report. Duluth is one of the major ports in the United States out of which iron ore, coal, limestone, cement, grain, paper and chemicals are shipped. Duluth is also a regional banking, retail, medical and cultural center with leading employers including St. Mary’s/Duluth Clinic, St. Luke’s Hospital, Uniprise (United HealthCare), Allete (Minnesota Power), DM&IR (Duluth Mesabi and Iron Range Railway Co.), Cirrus Design, Grandma’s Restaurants and the Minnesota Air National Guard. The Duluth-Superior area is also the home of numerous educational institutions such as the University of Minnesota-Duluth, the University of Wisconsin-Superior and the College of St. Scholastica.

Stations owned by Malara Broadcast Group to which we provide services. The following is a description of each of the television stations to which we provide services under local service agreements since March 8, 2005:

WPTA, Fort Wayne, Indiana

WPTA commenced broadcasting in 1957 and is an ABC affiliate. Malara Broadcast Group acquired WPTA from us on March 7, 2005. We entered into local services agreements with respect to WPTA on March 8, 2005.

The station’s newscasts rank number 1 in the adults 25-54 ratings category. WPTA has been the long-time news leader in the market, broadcasting 4 hours of local news per weekday. The station’s syndicated programming includes shows such as Oprah, Everybody Loves Raymond and Entertainment Tonight.

Fort Wayne is currently the 105^th largest DMA in the country, comprising twelve counties and approximately 271,000 television households. See the description of television station WISE-TV above for additional information on the Fort Wayne, Indiana area.

KDLH, Duluth, Minnesota-Superior, Wisconsin

KDLH commenced broadcasting in 1954 and is a CBS affiliate. Malara Broadcast Group acquired KDLH from New Vision Television in March 2005. We entered into local services agreements with respect to KDLH on March 8, 2005.

The station’s syndicated programming includes shows such Montel Williams, Judge Judy, Oprah, Seinfeld and Access Hollywood.

Duluth, MN-Superior, WI is currently the 137^th largest DMA in the country, comprising twelve counties and approximately 169,000 television households. See the description of television station KBJR-TV above for additional information on the Duluth, Minnesota-Superior, Wisconsin area.

Station owned by Four Seasons Broadcast Company to which we provide services. The following is a description of the television stations to which we provide services under local service agreements, as of September 1, 2005:

WAOE, Peoria-Bloomington, Illinois

WAOE commenced broadcasting in 1998 and is a UPN affiliate (and will be an affiliate of MyNetworkTV effective September 2006). Four Seasons Broadcast Company has owned and operated WAOE since its inception. We entered into local services agreements with respect to WAOE on September 1, 2005.

The station’s syndicated programming includes shows such as Friends, That 70’s Show, Malcolm in the Middle, Judge Judy and Jerry Springer.

Employees

As of March 15, 2006, we employed 749 persons, comprised of 684 full-time and 65 part-time or temporary employees, of whom 261 are represented by three unions pursuant to agreements expiring at various times in 2006, 2007 and 2008. We believe our relations with our employees are good.

Network Affiliation

The nature of a television station’s revenues, expenses and operations is largely dependent on whether or not a station is affiliated with one of the major networks. Affiliates of the major networks, which include NBC, ABC, CBS and Fox, receive a significant portion of their programming each day from the network. These major networks provide programming, and in some cases, cash payments, to their affiliated stations in exchange for a significant portion of the affiliates’ advertising inventory during the network provided programs. These networks then sell this advertising time and retain the revenue. Affiliates of WB and UPN, receive prime time programming from the network pursuant to agreed upon arrangements.

In contrast, fully independent stations purchase or produce all of their programming, resulting in higher programming costs, but allowing independent stations to retain entire advertising inventory and revenue. However, barter and cash-plus-barter arrangements are becoming increasingly popular. Under these arrangements, a national program distributor typically retains up to 50% of the available advertising time for programming it supplies, in exchange for reduced fees for such programming from the independent stations.

We have entered into affiliation agreements with networks for each of the stations we own. KSEE, WEEK, WISE (acquired March 8, 2005) and KBJR are affiliated with NBC, WKBW is affiliated with ABC, WTVH is affiliated with CBS, and KBWB and WDWB stations are affiliated with WB. WPTA, which we sold on March 7, 2005 to Malara Broadcast Group, is affiliated with ABC. With respect to the two stations that are owned by Malara Broadcast Group to which since March 8, 2005, we provide services under local services agreements, KDLH is affiliated with CBS and WPTA is affiliated with ABC. WAOE, which is owned by Four Seasons Broadcast Company, is affiliated with UPN.

The affiliation agreements with the major networks provide the stations with the right to broadcast all programs transmitted by the traditional network with which it is affiliated. In exchange, the network has the right to sell a significant amount of the advertising time during these broadcasts. In addition, the CBS and ABC stations, for every hour that those stations elect to broadcast traditional network programming, the network pays the station a fee, specified in each affiliation agreement, which varies with the time of day. The NBC stations currently do not receive network compensation. Typically, prime time programming generates the highest hourly rates. Rates are subject to increase or decrease by the network during the term of each affiliation agreement, with provisions for advance notice to, and right of termination by, the station in the event of a reduction in rates.

Under the affiliation agreements with the WB network, KBWB and WDWB each pays an affiliation fee for the programming each station receives pursuant to its affiliation agreement. On January 24, 2006, the WB network announced that effective September 2006, the WB network and the UPN network will form a new network and no longer provide programming to their respective networks. The unexpected decision by the WB Network to no longer provide programming to current WB affiliates has made our planned sales of KBWB and WDWB on an acceptable basis much less certain at the current time.

The network affiliation agreements expire on the following dates:

Station	Network affiliation	Status (1)	Affiliation agreement expiration date
WDWB	WB	O&O (4)	May 31, 2007 (5)
WKBW	ABC	O&O	June 30, 2013
WPTA	ABC	LSA (2), (3)	June 30, 2013
WISE	NBC	O&O (2)	January 1, 2011
WTVH	CBS	O&O	December 31, 2015
KBWB	WB	O&O (4)	January 9, 2008 (5)
KSEE	NBC	O&O	December 31, 2011
WEEK	NBC	O&O	December 31, 2011
KBJR	NBC	O&O	December 31, 2011
KDLH	CBS	LSA (3)	June 30, 2015

(1) O&O refers to stations that we own and operate. LSA, or local service agreement, is the general term we use to refer to a contract under which we provide services to a station owned and/or operated by an independent third party. Local service agreements include shared services and advertising representation agreements. For further information regarding the LSAs to which we are party, see “Recent Developments.”

(2) On March 7, 2005, we sold WPTA-TV, UHF Channel 21, the ABC affiliate serving Fort Wayne, Indiana, to Malara Broadcast Group. On March 8, 2005, we acquired WISE-TV, UHF Channel 33, the NBC affiliate serving Fort Wayne, Indiana, from New Vision Group, L.L.C.

(3) On March 8, 2005, we entered into a strategic arrangement with Malara Broadcast Group, under which we will provide advertising sales, promotion and administrative services, and selected programming to Malara Broadcast Group-owned stations WPTA-TV and KDLH-TV in return for certain fees that will be paid by Malara Broadcast Group to us.

(4) On September 8, 2005, we entered into a separate definitive agreements to sell KBWB-TV, UHF Channel 20, the WB affiliate serving San Francisco, California and WDWB-TV, UHF Channel 20, the WB affiliate serving Detroit, Michigan to affiliates of AM Media Holdings, LLC. However, the unexpected decision by the WB Network to no longer provide programming to current WB affiliates effective in September 2006 has made sales of those stations on an acceptable basis much less certain at the current time. For information regarding the current status of such agreements, please see “Recent Developments.”

(5) On January 24, 2006 the WB network announced that effective September 2006, the WB network will no longer provide programming to current WB affiliates of their network.

In addition to these network affiliation agreements, we deliver WB programming on leased cable channels in Fort Wayne, Indiana and Duluth, Minnesota—Superior, Wisconsin. In the Duluth, Minnesota—Superior, Wisconsin, we deliver UPN programming on one of KBJR’s digital streams, which programming is retransmitted in analog format by certain major cable systems in the DMA. In addition, KRII multicasts Weather Plus on another of KBJR’s digital streams.

Under each of the affiliation agreements, the networks may terminate the agreement upon advance written notice under the circumstances specified in the agreements. On January 24, 2006, the WB network announced that effective September 2006, the WB network and the UPN network will form a new network and no longer provide programming to their respective networks. With the exception to the WB network affiliations (as discussed above), we have no reason to believe that the our network affiliation agreements for our other stations that we own, operate, program or provide sales and other services to will not be renewed when they expire.

Industry Overview

Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently, there are a limited number of channels available for broadcasting in any one geographic area and the license to operate a broadcast station is granted by the FCC. Television stations can be distinguished by the frequency on which they broadcast. Television stations which broadcast over the very high frequency, or VHF, band of the spectrum generally have some competitive advantage over television stations that broadcast over the ultra-high frequency, or UHF, band of the spectrum because VHF stations usually have better signal coverage and operate at a lower transmission cost. In television markets in which all local stations are UHF stations, such as Fort Wayne, Indiana, Peoria-Bloomington, Illinois and Fresno- Visalia, California, there is no competitive disadvantage to broadcasting over a UHF band.

Television station revenues are primarily derived from local, regional and national advertising and, to a lesser extent, from network compensation and revenues from studio rental and commercial production activities. Advertising rates are based upon a program’s popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic make-up of the market served by the station, and the availability of alternative advertising media in the market area. Because broadcast television stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a result may contribute to a decrease in the value of broadcast properties.

Competition

The financial success of our television stations is dependent on audience ratings and advertising revenues within each station’s geographic market. The stations compete for revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, the Internet, direct mail and local cable systems. Some competitors are part of larger companies with substantially greater financial resources than us.

Competition in the broadcasting industry occurs primarily in individual markets. Generally, a television broadcasting station in one market does not compete with stations in other market areas. Our television stations are located in highly competitive markets.

A television station’s ability to successfully compete in a given market depends upon several factors, including:

• management experience;

• signal coverage;

• local program acceptance;

• network affiliation;

• audience characteristics;

• assigned frequency; and

• strength of local competition.

The broadcasting industry is continuously faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, and changes in labor conditions, any of which could have an adverse effect on our operations and results. For example, digital video recorders, which permit consumers to digitally record television programming and then play back that programming, often without commercial advertisement, are increasing in popularity and could have an adverse effect on the our ability to generate advertising revenue.

Alternate programming, entertainment and video distribution systems can increase competition for a broadcasting station by bringing distant broadcasting signals into its market which are not otherwise available to the station’s audience and also by serving as distribution systems for non-broadcast programming. Programming is now being distributed to cable television systems by both terrestrial microwave systems and by satellite. Our stations also compete with home entertainment systems, including video cassette recorders and playback systems, video discs and television game devices, the Internet, multi-point distribution systems, multi-channel multi-point distribution systems, video programming services available through the Internet and other video delivery systems.

Our television stations also face competition from direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas and from video signals delivered over telephone lines. Satellites may be used not only to distribute non-broadcast programming and distant broadcasting signals but also to deliver local broadcast programming which otherwise may not be available to a station’s audience. Our stations may also face competition from wireless cable systems, including multi-channel distribution services, or MDS. Two four-channel MDS licenses have been granted in most television markets. MDS operations can provide commercial programming on a paid basis. A similar service also can be offered using the instructional television fixed service, or ITFS. The FCC allows the educational entities that hold ITFS licenses to lease their excess capacity for commercial purposes. The multi-channel capacity of ITFS could be combined with either an existing single channel MDS or a newer multi-channel multi-point distribution service to increase the number of available channels offered by an individual operator.

In addition, video compression techniques, now in use with direct broadcast satellites and for cable, are expected to permit a greater number of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting and other non-broadcast commercial applications, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower barriers to entry for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences may alter the competitive dynamics for advertising expenditures.

We are unable to predict the effect that these or other technological changes will have on our business or ability of the stations to compete in their markets. Commercial television broadcasting may face future competition from interactive video and data services that provide two-way interaction with commercial video programming, along with information and data services that may be delivered by commercial television stations, cable television, direct broadcast satellites, multi-point distribution systems, multi-channel multi-point distribution systems or other video delivery systems. In addition, actions by the FCC, Congress and the courts all suggest an increased future involvement in the provision of video services by telephone companies. The Telecommunications Act of 1996 lifted the prohibition on the provision of cable television services by telephone companies in their own telephone areas subject to regulatory safeguards and permits telephone companies to own cable systems under certain circumstances. SBC Communications Inc. and Verizon Communications Inc. have recently begun to expand their respective fiber-optic networks in order to offer Internet Protocol-based video services to their customers. The entry into the video programming distribution market by these entities and other telephone companies could increase the competition the stations face from other distributors of video programming.

FCC Regulation of Television Broadcasting

Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended. The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC to issue, revoke and modify broadcasting licenses, determine the locations of stations, regulate the equipment used by stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for violation of such regulations. The Telecommunications Act of 1996 was enacted on February 8, 1996 and amends major provisions of the Communications Act.

License Issuance and Renewal

Television broadcasting licenses are typically granted and renewed for a period of eight years, but may be renewed for a shorter period upon a finding by the FCC that the “public interest, convenience and necessity” would be served by a license for a shorter period. When a station applies for renewal of its television license, parties in interest as well as members of the public may apprise the FCC of the service the station has provided during the preceding license term and urge the grant or denial of the renewal application. A competing application for authority to operate a station and replace the incumbent licensee may not be filed against a renewal application and considered by the FCC in deciding whether to grant a renewal application.

The FCC grants a renewal application upon a finding that the licensee:

• has served the public interest, convenience, and necessity;

• has committed no serious violations of the Communications Act or the FCC’s rules; and

• has committed no other violations of the Communications Act or the FCC’s rules which would constitute a pattern of abuse.

If the FCC cannot make this finding, it may deny a renewal application, and accept other applications to operate the station of the former licensee. In the vast majority of cases, the FCC renews broadcast licenses even when petitions to deny are filed against broadcast license renewal applications. All of our existing licenses are in effect and with the exception of WDWB, either have license renewal applications pending or will file renewal applications during 2006 and 2007. The main station licenses for our, Malara Broadcast Group’s, and Four Season Broadcast Company’s television stations expire on the following dates:

Station	Status(1)	License expiration date
WPTA(TV)	LSA (2)(3)	August 1, 2005
WISE-TV	O&O (2)	August 1, 2005
WDWB(TV) (4)	O&O	October 1, 2013
WEEK-TV	O&O	December 1, 2005
WAOE(TV)	LSA(5)	December 1, 2005
KBJR-TV	O&O	December 1, 2005
KRII(TV) (6)	O&O	April 1, 2006
KDLH(TV)	LSA (3)	April 1, 2006
KSEE(TV)	O&O	December 1, 2006
KBWB(TV) (4)	O&O	December 1, 2006
WTVH(TV)	O&O	June 1, 2007
WKBW-TV	O&O	June 1, 2007

(5) On September 1, 2005, we entered into a strategic arrangement with Four Seasons Broadcast Company, under which we will provide advertising sales, promotion and administrative services to Four Seasons Broadcast Company-owned station WAOE (TV) in return for certain fees that will be paid by Four Seasons Broadcast Company to us.

(6) KRII, Channel 11, Chisholm, Minnesota, is a satellite station that transmits the signal of KBJR into the northern section of the DMA. Although KRII predominantly rebroadcasts the KBJR signal, KRII broadcasts unique news and weather content, as well as certain commercials, separately to this region. KBJR also airs UPN programming over its DTV signal that is carried by virtually all cable operators in the DMA.

Although there can be no assurances that our licenses will be renewed, we are not aware of any facts or circumstances that would prevent us from having our licenses renewed.

Ownership Restrictions

The Communications Act also prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. In its review process, the FCC considers financial and legal qualifications of the prospective assignee or transferee and also determines whether the proposed transaction complies with rules limiting the common ownership of certain attributable interests in broadcast, cable, and newspaper media on a local and national level. The FCC’s restrictions on multiple ownership could limit the acquisitions and investments that we make or the investments other parties make in us. However, none of our officers, directors or holder of voting common stock currently has attributable or non-attributable interests that violate the FCC’s ownership rules currently in effect. As discussed below, the FCC released a comprehensive media ownership order on July 2, 2003 in which it revised many of its media ownership rules.

On June 2, 2003, the FCC modified its media ownership rules. The revised media ownership rules were to become effective on September 4, 2003. However, on September 3, 2003, the U.S. Court of Appeals for the Third Circuit stayed the effectiveness of the new rules. On June 24, 2004, the Third Circuit issued a decision finding virtually all of the modified media ownership rules without support and remanding the proceeding back to the FCC for further consideration. The stay of the modified media ownership rules remains in effect pending the FCC’s review on remand except with respect to certain limited aspects of the FCC’s media ownership order, including the FCC’s revised definition of local radio market. The modified media ownership rules also are subject to pending petitions for reconsideration filed with the FCC. We are unable to predict the eventual outcome of the reconsideration petitions, or the outcome of the FCC’s review on remand. We are unable to predict the potential effect any changes would have on our business.

Attribution

Ownership of television licensees is attributed to officers, directors and shareholders who own 5% or more of the outstanding voting stock of a licensee, except that certain institutional investors who exert little or no control or influence over a licensee may own up to 20% of a licensee’s outstanding voting stock before attribution results. Under the FCC’s “equity-debt plus” rule, a party’s interest will be deemed attributable if the party owns equity, including all stockholdings, whether voting or non-voting, common or preferred, and debt interests, in the aggregate, exceeding 33% of the total asset value, including debt and equity, of the licensee and it either provides 15% of the station’s weekly programming or owns an attributable interest in another broadcast station, cable system or daily newspaper in the same market. In contrast, debt instruments, non-voting stock and certain limited partnership interests, provided the licensee certifies that the limited partners are not materially involved in the media-related activities of the partnership, will not result in attribution.

In December 2000, the FCC revised its rules to eliminate the single majority shareholder exception from the broadcast attribution rules. Under that exception, the interest of a minority voting shareholder would not be attributable if one person or entity held more than 50% of the combined voting power of the common stock company holding or controlling a broadcast license. Any minority voting stock interest in a company with a single majority shareholder was grandfathered as non-attributable if the interest was acquired before December 14, 2000. The FCC’s decision eliminating the single majority shareholder exception as it applies to cable system ownership was appealed to the United States Court of Appeals for the District of Columbia Circuit, and in March 2001, the court reversed the FCC’s decision and remanded the case to the FCC. In December 2001, the FCC suspended its repeal of the single majority shareholder exception for broadcast attribution rules, effectively reinstating the exception, until it could act on the court remand. As a result, the single majority shareholder exception from the broadcast attribution rules currently is in effect. The media ownership order released by the FCC on July 2, 2003, did not address the majority shareholder exception.

In addition, for purposes of its national and local multiple ownership rules, the FCC attributes local marketing agreements in which the broker provides more than 15% of the brokered station’s weekly program time. This means that, if an entity owns one television station in a market and has a qualifying local marketing agreement with another station in the same market, this arrangement must comply with all of the FCC’s ownership rules including the television duopoly rule. Local marketing agreements entered into prior to November 5, 1996 are grandfathered until the FCC initiates a future proceeding when their status will be reviewed on a case by case basis. Local marketing agreements entered into on or after November 5, 1996 were grandfathered temporarily until August 2001 only. We do not operate any stations pursuant to a grandfathered local marketing agreement.

In its recent media ownership order, the FCC concluded that a radio joint advertising sales agreement in which a same-market radio station was the broker for more than 15 percent of the brokered radio station’s weekly advertising time would constitute an attributable interest for the broker in the brokered radio station. As a result, the FCC would count the brokered radio station towards the broker’s permissible ownership totals under the revised radio ownership rules. The Third Circuit affirmed the FCC’s decision with respect to attribution of these radio joint sales agreements. The FCC did not attribute same-market joint sales agreements for television stations in its media ownership order. However, on August 2, 2004, the FCC initiated a proceeding to seek comment on whether to attribute same-market television joint sales agreements. We cannot predict whether the FCC will decide to attribute television joint sales agreements.

The Company has entered into shared services and advertising representation agreements with Malara Broadcast Group of Duluth Licensee LLC, the licensee of television station KDLH, Duluth, Minnesota, and Malara Broadcast Group of Fort Wayne Licensee LLC, the licensee of television station WPTA, Fort Wayne, Indiana. Under these agreements, the Company provides up to 15% of the stations’ weekly programming and also sells all of the stations’ available advertising time. A petition to deny the Malara application to acquire KDLH was filed with the FCC jointly by two competing television station licensees in the Duluth market. On December 14, 2004, the FCC’s Media Bureau (“Bureau”) released a decision in which it denied the joint petition and consented to the assignment of KDLH’s license to Malara. In reaching this decision, the Bureau determined the agreements do not give the Company de facto control of KDLH or result in the Company’s having an attributable interest in KDLH under the FCC’s existing attribution rules. In January 2005, the petitioning broadcasters filed an application for review seeking Commission-level review of the Bureau’s decision. Malara filed an opposition to the application for review, and the petitioning broadcasters filed a response to that opposition. The FCC has not yet ruled on the application for review. Although we believe that the application for review is without merit and anticipate that the FCC will affirm the grant of the assignment application for KDLH, it is not possible to predict how the FCC will rule on the application for review. It also is not possible to predict any remedial action that may be imposed by the FCC in the event that it grants the application for review. FCC grant of the application for review ultimately could result in a reformation or rescission of these agreements, the assignment of the KDLH license back to New Vision Group, L.L.C., or a sale by Malara of its ownership of KDLH.

The Company has entered into shared services and advertising representation agreements with Four Seasons Peoria, LLC, the licensee of television station WAOE, Peoria, Illinois. Under this agreement, the Company provides certain administrative services and sells all of the station’s available advertising time.

National Ownership Rules

Prior to the 2002 biennial review, FCC rules provided that no individual or entity could have an attributable interest in television stations that reach more than 35% of the national television viewing audience. For purposes of this calculation, stations in the UHF band, which covers channels 14—69, receive a “UHF discount” and are attributed with only 50% of the households attributed to stations in the VHF band, which covers channels 2—13. In the June 2, 2003 media ownership order, the FCC raised the national ownership cap from 35% to 45% and maintained the UHF discount. These decisions were appealed before the Third Circuit and, as a result, the revised rules were stayed pending the court’s review. However, the Consolidated Appropriations Act of 2004 amended Section 202(c) of the Telecommunications Act of 1996 by increasing the national ownership cap to 39 percent. As a result, the Third Circuit determined that challenges to the FCC’s decision to raise the cap to 45% and to retain the UHF discount were rendered moot. Prior to the Third Circuit’s June 24, 2004 decision, on February 19, 2004, the FCC sought comment on whether to modify or eliminate the UHF discount. The court’s decision did not foreclose further FCC consideration of the UHF discount, but the FCC has not yet taken action on the comments it received. We are unable to predict the outcome of this proceeding.

Television Duopoly Rule

Prior to the adoption of the July 2003 media ownership order, the FCC’s television duopoly rule permitted parties to own up to two television stations in the same designated market area as long as at least eight independently owned and operating full-power television stations, or “voices,” would remain in the market post-acquisition, and at least one of the two stations was not among the top four ranked stations in the designated market area based on specified audience share measures. Under the duopoly rule, once a company acquires a television station duopoly, the joint owner is not required to divest either station if the number of voices within the market subsequently falls below eight, or if either of the two jointly-owned stations later is ranked among the top four stations in the market; however, the multiple television station owner can sell the television combination to a third party only if the joint ownership is in compliance with the duopoly rule at the time of the sale to the third party.

The FCC revised the duopoly rule in the media ownership order. Pursuant to the revised duopoly rule, a single entity may own an attributable interest in two television stations in the same designated market area provided that one of the stations is not among the top-four rated stations in the market based on audience share. A station’s rank is determined by using the station’s most recent all-day audience share, as measured by Nielsen, at the time the transfer or assignment application is filed with the FCC. In addition, the media ownership order provides that an entity may own an attributable interest in three television stations in the same designated market area if the proposed acquisition does not involve one of the top-four rated stations and there are at least 18 independent television station voices in the designated market area. Under the revised duopoly rule, the multiple television station owner can sell the television combination to a third party only if the joint ownership is in compliance with the revised duopoly rule at the time of the sale to the third party. Both commercial and non-commercial broadcast television stations are counted to determine the number of television stations that are in a designated market area.

Under its previous rules, the FCC could grant a waiver of the television duopoly rule if one of the two television stations was a failed or failing station, if the proposed transaction would result in the construction of an unbuilt television station or if compelling public interest factors were present, provided that a waiver applicant demonstrated that no reasonable out-of-market buyer was available. The FCC generally retained this waiver standard in the media ownership order but removed its requirement that an applicant demonstrate the absence of an out-of-market buyer. In addition, the FCC provided for a case-by-case review of waiver requests other than those based on a failed, failing, or unbuilt station in markets with 11 or fewer stations, in recognition that consolidation in markets of this size could lead to significant public interest benefits in some circumstances. The FCC also imposed two limitations on waivers once they are granted. First, at the end of the merged stations’ license terms, the combined stations’ owner must provide a specific factual showing of the public interest benefits provided from the merger and must certify that the public interest benefits promised by the merger are being fulfilled. Second, a combination owner may not assign or transfer a station combination involving a station acquired pursuant to a waiver unless the assignee or transferee demonstrates that the proposed transaction complies with the waiver standard at the time of the acquisition.

Prior adoption of the media ownership order satellite stations authorized to rebroadcast the programming of a parent station located in the same designated market area were exempt from the duopoly rule. The FCC retained this satellite exemption in the media ownership order. As a result, our common ownership of KBJR and KRII is fully consistent with the television duopoly rule under the previous or modified rules.

On June 24, 2004, the FCC’s media ownership order, including revisions made to the duopoly rule, was remanded back to the FCC for further consideration by the U.S. Court of Appeals for the Third Circuit. Pursuant to the stay issued by the Third Circuit, the FCC’s previous duopoly rule and waiver standard remain in effect pending the FCC’s review on remand. We are unable to predict the outcome of the FCC’s consideration of its media ownership rules on remand.

Cross-Ownership Rules

There are no FCC rules governing broadcast/cable cross-ownership. Prior to the adoption of the media ownership order the FCC’s broadcast/newspaper cross-ownership rule further prohibited the common ownership of a broadcast television station and a daily newspaper in the same local market. The FCC’s radio/television cross-ownership rule also restricted the common ownership of television and radio stations in the same market. Under the previous rules, one entity could own up to two television stations and six radio stations in the same market provided that:

• 20 independent media voices, including certain newspapers and a single cable system, would remain in the relevant market following consummation of the proposed transaction, and

• the proposed combination would be consistent with the television duopoly and local radio ownership rules.

If fewer than 20 but more than 9 independent media voices would remain in a market following a proposed transaction, and the proposed combination was otherwise consistent with the FCC’s rules, a single entity could hold attributable interests in up to two television stations and up to four radio stations. If neither of these “independent media voice” tests was met, a party generally could have an attributable interest in no more than one television station and one radio station in a market.

The FCC revised its cross-ownership rules in the media ownership order. The new cross-media ownership rules, which limit the number and type of media outlets a single entity may own in a local market, replace both the prior broadcast/newspaper cross-ownership rule and the prior radio/television cross-ownership rule. The new cross-media ownership rules permit cross-media combinations according to the number of television stations within a market. In markets with nine or more television stations, there are no cross-media ownership limits. In markets with between four and eight television stations, one of the following combinations is permitted:

• a daily newspaper, one television station, and up to half of the radio station limit for that market;

• a daily newspaper and up to the radio station limit for that market; or

• two television stations and up to the radio station limit for that market.

In markets with three or fewer television stations, no cross-ownership among television, radio, and newspapers is permitted; however, an entity may obtain a waiver of this ban by showing that the television station and the cross-owned media do not serve the same area. In addition, the new rule defines the local market according to the number of television stations within the area, not independent voices.

On June 24, 2004, the FCC’s media ownership order, including revisions made to the cross-ownership rules, was remanded back to the FCC for further consideration by the U.S. Court of Appeals for the Third Circuit. Pursuant to a stay issued by the Third Circuit, the FCC’s previous cross-ownership rules remain in effect pending the FCC’s review on remand. We are unable to predict the outcome of the FCC’s consideration of its media ownership rules on remand.

Antitrust Review

The Department of Justice and the Federal Trade Commission have the authority to determine that a transaction presents antitrust concerns. These agencies have increased their scrutiny of the television and radio industries, and have indicated their intention to review matters related to the concentration of ownership within markets, including local marketing agreements, even when the ownership or local market agreement in question is permitted under the regulations of the FCC. In March 2002, the Department of Justice and Federal Trade Commission reached an agreement through which the Department of Justice would assume primary control over all merger reviews in the media and entertainment industries, however, the Senate Commerce committee has stated an intention to formally review this decision to assign media mergers to the Department of Justice. There can be no assurance that future policy and rulemaking activities of the Antitrust Agencies will not impact our operations.

Alien Ownership

Foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-citizens, however, may own up to 20% of the capital stock of a licensee and up to 25% of the capital stock of a United States corporation that, in turn, owns a controlling interest in a licensee. A broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation of which more than one-fourth of the capital stock is owned or voted by non-citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. Non-citizens may serve as officers and directors of a broadcast licensee and any corporation controlling, directly or indirectly, such licensee. As a result, we are restricted by the Communications Act from having more than one-fourth of our capital stock owned by non-citizens, foreign governments or foreign corporations, but not from having an officer or director who is a non-citizen.

Equal Employment Opportunity

On November 20, 2002, the FCC released a new set of equal employment opportunity rules which became effective on March 10, 2003. The new rules require us to comply with certain recruiting, outreach, record keeping and reporting requirements in addition to complying with the general prohibition against employment discrimination. On February 6, 2003, interested parties filed a joint petition for partial reconsideration of the FCC’s new rules, which remains pending. In addition, on June 4, 2004, the FCC released an order reinstating the requirement that certain stations prepare and file annual employment reports with the FCC and seeking comment on whether employment data submitted to the FCC should be withheld from public inspection. On July 23, 2004, interested parties filed a joint petition for reconsideration or clarification of this requirement. We are unable to predict the resolution of the petitions for reconsideration. The new rules remain in effect pending the resolution of these petitions for reconsideration.

Indecency

In 2004, the FCC imposed substantial fines on television broadcasters for the broadcast of indecent material in violation of the Communications Act and its rules. The FCC also revised its indecency review analysis to more strictly prohibit the use of certain language on television stations. On March 15, 2006, the FCC released several orders in which it imposed fines on television stations for the broadcast of indecent content. In one of these orders, the FCC assessed against KDLH a monetary forfeiture in the amount of $32,500 for its broadcast of the CBS program “Without a Trace.” Because the programming broadcast by stations owned by us and Malara Broadcast Group is in large-part comprised of programming provided by the networks with which the stations are affiliated, we and Malara Broadcast Group do not have full control over what is broadcast on our stations, and we and Malara Broadcast Group may be subject to the imposition of fines if the FCC finds such programming to be indecent. In addition, Congress currently is considering legislation that will substantially increase the maximum amount the FCC can fine broadcasters for the broadcast of indecent programming and may consider permitting the FCC to institute license revocation proceedings against any station which repeatedly violates the indecency regulations.

Must Carry/Retransmission Consent

The Cable Television Consumer Protection and Competition Act of 1992, or Cable Act, and the FCC’s implementing regulations give television stations the right to control the use of their signals on cable television systems. Under the Cable Act, at three year intervals beginning in June 1993, every qualified television station is required to elect whether it wants to avail itself of must-carry rights or, alternatively, to grant retransmission consent. Whether a station is qualified depends on factors such as the number of activated channels on a cable system, the location and size of a cable system, the amount of duplicative programming on a broadcast station and the signal quality of the station at the cable system’s head end. If a television station elects retransmission consent, cable systems are required to obtain the consent of that television station for the use of its signal and could be required to pay the television station for such use. The Cable Act further requires mandatory cable carriage of all qualified local television stations electing their must-carry rights or not exercising their retransmission rights. Under the FCC’s rules, television stations were required to make their latest periodic election between must-carry and retransmission consent status by October 1, 2005, for the period from January 1, 2006 through December 31, 2008. Television stations that failed to make an election by the specified deadline are deemed to have elected must-carry status for the relevant three-year period. For the three year period beginning January 1, 2006, each of our stations has either elected its must-carry rights, entered into retransmission consent agreements, or obtained an extension to permit us to continue negotiating a retransmission consent agreement with substantially all cable systems in its designated market area.

On February 25, 2005, the FCC released an order resolving the scope of the cable systems’ carriage obligations with respect to digital broadcast signals during and following the national transition from analog to digital television, or DTV, service. In its order, the FCC affirmed its earlier tentative conclusion that broadcasters will not be entitled to mandatory carriage of both their analog and DTV signals. In addition, the FCC affirmed its prior determination that cable operators are not required to carry more than a single digital programming stream from a DTV broadcast station. As a result, cable systems are required to carry only the primary DTV programming streams of each of our stations. However, our stations remain free to negotiate for carriage of additional DTV programming streams on cable systems. The digital carriage rules are subject to pending petitions for reconsideration filed with the FCC. We are unable to predict the eventual outcome of the reconsideration petitions or the potential effect any changes would have on our business.

Satellite Home Viewer Improvement Act and Satellite Home Viewer Extension Reauthorization Act

Under the Satellite Home Viewer Improvement Act, or SHVIA, a satellite carrier generally must obtain retransmission consent before carrying a television station’s signal. Specifically, SHVIA:

• provides a statutory copyright license to enable satellite carriers to retransmit a local television broadcast station into the station’s local market;

• permits the continued importation of network signals that originate outside of a satellite subscriber’s local television market or designated market areas for certain existing subscribers;

• provides broadcast stations with retransmission consent rights in their local markets; and

• mandates carriage of broadcast signals in their local markets after a phase-in period.

SHVIA permits satellite carriers to provide distant or nationally broadcast programming to subscribers in “unserved” households. Households are unserved by a particular network if they do not receive a signal of at least a specified intensity from a station affiliated with that network or may qualify as unserved pursuant to other limited circumstances. However, satellite television providers can retransmit the distant signals of no more than two stations per day for each television network. As of January 1, 2002, a satellite carrier retransmitting the signal of any local broadcast station into the station’s local market generally must carry all stations licensed to the carried station’s local market upon request. The portion of SHVIA that grants satellite carriers a compulsory copyright license to provide distant network signals to unserved households was set to expire at the end of 2004. On December 8, 2004, the President signed into law the Satellite Home Viewer Extension Reauthorization Act of 2004, or SHVERA. SHVERA reauthorizes and extends the term of the satellite compulsory copyright license to December 31, 2009. In addition, among other things, SHVERA:

• permits the importation of network digital signals that originate outside of a satellite subscriber’s local television market or designated market area for certain eligible subscribers; and

• enables satellite carriers to offer “significantly viewed” analog and digital television signals pursuant to the satellite compulsory license to subscribers under certain circumstances.

On November 30, 2005, the FCC released an order establishing rules for satellite carriage of “significantly viewed” analog and digital television signals. Among other things, these rules require that a subscriber receive the analog signal of the local network affiliate as a precondition to receiving the analog signal of a “significantly viewed” station affiliated with the same network and that satellite carriers offer the local network affiliate and the “significantly viewed” signals at a comparative bit rate. On January 26, 2006, DirecTV, Inc. and EchoStar Satellite LLC filed with the FCC a petition for reconsideration of these rules. We are unable to predict the eventual outcome of the reconsideration petition or the outcome of the potential effect any changes would have on our business.

Pursuant to the satellite compulsory license, satellite carriers have begun to offer local broadcast signals to subscribers in some of the nation’s large and mid-sized television markets. As of March 2006, satellite carriers DirecTV and EchoStar both carried the signals of our stations KBWB, and WDWB, which are under separate contracts of sale to affiliates of AM Media Holdings, LLC, and WKBW, KSEE and KBJR.

Digital Television

Pursuant to the Telecommunications Act of 1996, the FCC has adopted rules authorizing and implementing digital television, or DTV, service, technology that should improve the quality of both the audio and video signals of television stations. The FCC has “set aside” channels within the existing television spectrum for DTV and limited initial DTV eligibility to existing television stations and certain applicants for new television stations. The FCC has adopted a DTV table of allotments as well as service and licensing rules to implement DTV service. The DTV allotment table provides a channel for DTV operations for each existing broadcaster and is intended to enable existing broadcasters to replicate their existing analog service areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S. television markets were required to initiate commercial DTV service with a digital signal by May 1, 1999. Affiliates of these networks located in the 11th through the 30th largest U.S. television markets were required to begin DTV operation by November 1, 1999. All other commercial stations were required to construct DTV facilities by May 1, 2002. KBWB, WEEK, KSEE, WDWB, WKBW and WPTA have initiated full-power operation of their DTV facilities pursuant to an FCC license.

In November 2001, the FCC modified its digital television transition rules in an effort to ease the burden of the required build out. Among other changes, the FCC relaxed its build out requirements by allowing stations to seek special temporary authorizations to construct the minimum DTV facilities required to serve their respective community of license. Stations operating pursuant to such special temporary authorizations are considered to have met their respective DTV construction deadline. Pursuant to the FCC’s relaxed DTV build out requirements, WISE, KBJR, WTVH, and KDLH completed construction of their DTV facilities and operate their DTV facilities pursuant to special temporary authorizations for reduced power operation. We may request additional six-month extensions of WISE’s, KBJR’s, WTVH’s and KDLH’s special temporary authorizations as necessary, which we believe are likely to be granted under the FCC’s current rules.

Congress has mandated that broadcasters convert to DTV service, terminate their existing analog service and surrender one of their two television channels to the FCC, on or before February 17, 2009.

On September 7, 2004, the FCC completed its second periodic review of its rules and policies affecting the national transition to digital television. In the order, the FCC established deadlines by which DTV stations are required to replicate their respective analog service areas. DTV stations in the top 100 television markets which are affiliated with the top-four networks (i.e., ABC, CBS, Fox, and NBC) are required to replicate their respective analog service areas by July 1, 2005, or risk losing interference protection to their unreplicated service areas. All other DTV stations must replicate their respective analog service areas by July 1, 2006, or risk losing interference protection to their unreplicated service areas. KBWB, WDWB, WKBW, KSEE, and WTVH were subject to the July 1, 2005 deadline. On July 1, 2005, WTVH filed with the FCC a request for an extension of the July 1, 2005 deadline, which request remains pending. If the FCC denies WTVH’s request, WTVH will lose interference protection for a portion of its analog service area. We are unable to predict whether the FCC will grant WTVH’s request. All other DTV stations must replicate their respective analog service areas by July 1, 2006, or risk losing interference protection to their unreplicated service areas. Granite-owned stations WISE, WEEK, KBJR, and KRII, are subject to the July 1, 2006 deadline, as are Malara Broadcast Group-owned stations WPTA and KDLH and Four Seasons Broadcast Company-owned station WAOE. The Company anticipates that these stations will fully replicate their respective service areas by this date.

In addition, in the second periodic review order, the FCC instituted a DTV channel election process under which television stations, including satellite television stations, must select the DTV channel on which they plan to operate digitally at the end of the DTV transition period. This DTV channel election process is being implemented in several rounds. The first round of DTV channel elections occurred on February 10, 2005 and the second round of DTV channel elections occurred on October 24, 2005. The third round of DTV channel elections is expected to occur during the first half of 2006. Following the conclusion of the final round of DTV channel elections, the FCC will issue a new DTV table of allotments. In the first round of DTV channel elections, KBWB, WDWB, WKBW, KSEE, WTVH, WISE-TV, WPTA, KBJR, and KDLH elected their current digital channel assignment for their post-transition DTV operations. WEEK, KRII, and WAOE elected their current analog station for their post-transition DTV operations. With the exception of KBWB and WEEK, the FCC approved these tentative channel selections on June 23, 2005. The FCC determined that channel conflict exists with respect to KBWB’s and WEEK’s channel election and, on August 8, 2005, KBWB and WEEK filed channel conflict resolution applications with the FCC, which applications remain pending.

The FCC also has adopted rules that permit DTV licensees to offer ancillary or supplementary services on their DTV channels under certain circumstances. The FCC rules further require DTV licensees to pay a fee of 5% of the gross revenues received from any ancillary or supplemental uses of the DTV spectrum for which the company charges subscription fees or other specified compensation. No fees will be due for commercial advertising revenues received from free over-the-air broadcasting services. The FCC recently adopted rules intended to protect digital television transmissions from unauthorized redistribution. Specifically, the FCC adopted use of a mechanism known as the “broadcast flag” to protect digital transmissions from unauthorized redistribution and also established rules to ensure that equipment on both the transmission and reception side is capable of giving effect to the broadcast flag. The FCC also has initiated a notice of inquiry to examine whether additional public interest obligations should be imposed on DTV licensees. Various proposals in this proceeding would require DTV stations to increase their program diversity, focus more programming and resources on addressing local issues and political discourse, increase access for disabled viewers and improve emergency warning systems. This proceeding remains pending. On November 24, 2004, the FCC released an order requiring DTV stations to provide children’s educational and informational programming on their primary DTV program stream and on any additional DTV program streams. The FCC also has sought comment on adopting regulations governing the use of interactive technologies during children’s television programming. On February 2, 2005, interested parties filed petitions for reconsideration of certain aspects of the order imposing children’s television programming obligations on DTV broadcasters. Interested parties have also filed petitions for judicial review in the U.S. Court of Appeals for the Sixth Circuit and the U.S. Court of Appeals for the District of Columbia Circuit. These petitions have been consolidated in the U.S. Court of Appeals for the Sixth Circuit. On February 9, 2006, the petitioning parties filed with the FCC a joint proposal recommending modifications or clarifications for several of the children’s television rules. The petitioning parties agreed that if the FCC adopts the joint proposal, they will withdraw their respective legal challenges to the FCC’s rules. On March 17, 2006, the FCC adopted a second further notice of proposed rulemaking seeking public comment on the joint proposal.We are unable to predict how the FCC will act on the joint proposal.

As discussed above, KRII is a satellite television station that transmits the signal of KBJR into the northern section of the Duluth, Minnesota DMA. Unlike our other stations, KRII was not allotted a paired DTV channel in the FCC’s initial DTV table of channel allotments because the station had not yet received an analog construction permit or license at the time the table was issued. The FCC has determined that single-channel satellite television stations like KRII will be permitted to switch, or “flash cut,” from analog to DTV transmissions on their existing channel at the end of the DTV transition period.

Class A Television Stations

In November 1999, Congress enacted the Community Broadcasters Protection Act, which created a new Class A status for low power television stations. Under this statute, low power television stations which previously had secondary status to full power television stations are eligible for Class A status and are entitled to protection from future displacement by modifications to full-power television stations under certain circumstances. The FCC has adopted rules governing the extent of interference protection that must be afforded to Class A stations and the eligibility criteria for these stations. Because Class A stations are required to provide interference protection to previously authorized full-power television stations, these new facilities are not expected to adversely affect the operations of our television stations.

Proposed Legislation and Regulations

The FCC currently has under consideration, and the Congress and the FCC may in the future consider and adopt, new or modified laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership, and profitability of our broadcast properties, result in the loss of audience share and advertising revenues for our stations, or affect our ability to acquire additional stations or finance acquisitions. Such matters include but are not limited to:

• penalties for the broadcast of indecent programming;

• broadcast ownership limits;

• minority and female involvement in the broadcasting industry;

• public interest obligations of broadcasters;

• technical and frequency allocation matters; and

• changes to broadcast technical requirements;

We cannot predict whether such changes will be adopted or, if adopted, the effect that such changes would have on our business.

Item 1A. Risk Factors

We cannot identify nor can we control all circumstances that could occur in the future that may adversely affect our business and results of operations. Some of the circumstances that may occur and may impair our business are described below. If any of the following circumstances were to occur, our business could be materially adversely affected.

We have limited sources of liquidity and no working capital facility or other credit facility and therefore will not be able to service all of our obligations, absent changes in our operations or capital structure.

Our sources of available liquidity is our cash (approximately $8,300,000 as of March 15, 2006). Absent changes to our capital structure and station ownership we will not have enough cash to make the interest payment of $19,744,000 on our Notes on June 1, 2006 or otherwise service our existing obligations on an ongoing basis. Lack of liquidity would have a material adverse effect on our ability to implement our business strategy and continue as a going concern. We have engaged the services of Houlihan Lokey Howard & Zukin as our financial advisor to assist us in the evaluation of strategic options and to advise us on available financing and capital restructuring alternatives. There can be no assurance that any transaction will occur or, if one is undertaken, of its potential terms or timing. See “Liquidity and Capital Resources” in our Management’s Discussion and Analysis for further details.

Our principal strategy, seeking growth through acquisitions of television stations and operating arrangements with in-market television stations, may not be achievable absent dispositions of certain of our television stations.

Our ability to make acquisitions is dependent on our having successfully consummated asset dispositions. We may not be able to find buyers willing to acquire our stations at prices and on terms and conditions satisfactory to us, or at all. The current uncertainty in the regulatory environment surrounding multiple station ownership in certain of our existing television station markets may impede the sale of these stations at the present time.

We also pursue selective acquisitions of television stations with the goal of improving their operating performance by applying our management’s business and growth strategy. However, we may not be successful in identifying attractive acquisition targets. Future acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results, particularly during the period immediately following any acquisitions. We may not be able to successfully implement effective cost controls, increase advertising revenues or increase audience share with respect to any acquired station. In addition, our future acquisitions may result in our assumption of unexpected liabilities and may result in the diversion of management’s attention from the operation of our business.

In addition, television station acquisitions are subject to the approval of the FCC and, potentially, other regulatory authorities. For example, FCC rules restrict the number of television stations an entity may own within a single market. See “Business—Television Duopoly Rule’’ under Item 1. The need for FCC and other regulatory approvals could restrict our ability to consummate future transactions and potentially require us to divest some television stations if the FCC or the Department of Justice believes that a proposed acquisition would result in excessive concentration in a market, even if the proposed combinations may otherwise comply with FCC ownership limitations.

The Indenture, which governs our Notes, limits, and future debt obligations may limit, our ability to pursue our acquisition strategy, including certain limitations in the Indenture with respect to acquisitions for cash. If our acquisition strategy is not successful, our ability to make payments on the Notes could be adversely affected. Even if our acquisition strategy is successful, we may be unable to make payments on the Notes due to events which are beyond our control such as prevailing business, financial and economic conditions.

Our failure to successfully implement our business strategy may negatively affect our future liquidity and materially adversely affect us and our ability to make payments on the Notes.

The FCC could reverse, rescind or otherwise modify the Media Bureau’s consent to the assignment of the license of KDLH-TV to Malara Broadcast Group.

In May 2004, an application was filed with the FCC seeking consent to assign the license of television station KDLH to a subsidiary of Malara. A petition to deny the application was filed with the FCC jointly by two competing television station licensees in the Duluth market asserting that the Company will have a prohibited ownership interest in KDLH by virtue of the operating arrangement between Malara and the Company. The FCC’s Media Bureau (“Bureau”) denied the petition and granted the assignment application in December 2004. In January 2005, the petitioning broadcasters filed an application for review seeking Commission-level review of the Bureau’s decision. Malara filed an opposition to the application for review, and the petitioning broadcasters filed a response to that opposition. The FCC has not yet ruled on the application for review. Although we believe that the application for review is without merit and anticipate that the FCC will affirm the grant of the assignment application for KDLH, it is not possible to predict how the FCC will rule on the application for review. It also is not possible to predict any remedial action or possible sanction that may be imposed by the FCC in the event that it grants the application for review. FCC grant of the applications for review ultimately could result in a reformation or rescission of these agreements, the assignment of the KDLH license back to New Vision Group, L.L.C., or a sale by Malara of its ownership of KDLH.

FCC ownership rules and policies may limit our ability to create or maintain arrangements with in-market television stations, which would impair our strategy.

We would like to own or provide services to affiliated television stations with a strong local news presence, particularly in television markets in which we already operate a station. We are actively pursuing this strategy which includes the creation of arrangements with in-market television stations through ownership of one station and a combination of agreements (such as shared services, local services, sales representation, marketing, operating, guarantees or other agreements and arrangements) with a second station in that market. While these agreements take varying forms, a typical local services agreement, for example, is an agreement between two separately owned television stations serving the same market, whereby the owner of one station provides operational assistance to the other station, subject to ultimate editorial and other controls being exercised by the latter station’s owner. By operating or entering into a local services agreement with a second television station in a market in which we own a station, we believe that we could achieve significant operational efficiencies, broaden our audience reach and enhance our ability to capture more advertising spending in a given market. While these types of arrangements have been approved by the FCC pursuant to delegated authority as consistent with current FCC rules and policies, there can be no assurances that the FCC will continue to permit agreements as a means of creating opportunities for arrangements with in-market television stations, that the FCC will not assert its authority over the FCC staff in this area (which may result in modifications to current policy) or that the FCC’s treatment of these types of arrangements we may enter into will be consistent with the treatment described above or on terms that will permit us to realize the benefits described above. Specifically, the FCC may change its current policies with regard to the regulatory treatment of and acceptability of certain terms and conditions of such arrangements for a variety of reasons, such as in response to direction from legislators or public opinion, in a way that prevents such arrangements or requires significant modifications to the financial or other material terms of such arrangements. For example, the FCC recently initiated a proceeding to seek comment on whether to attribute same-market television joint sales agreements. We cannot predict whether the FCC will decide to attribute television joint sales agreements. See “Business —FCC Regulation of Television Broadcasting’’ and ‘‘Business—Attribution” under Item 1. If the FCC, on its own initiative or in response to a third party complaint, were to challenge such arrangements and determine that such arrangements constitute attributable interests in violation of, or otherwise violate, the FCC’s rules or policies, we may be unable to implement this business strategy or be required to revise or terminate existing arrangements, and we could be subject to sanctions, fines and/or other penalties. Any such change in FCC policies concerning arrangements involving joint sales agreements, local services agreements, guarantees or similar agreements could limit our ability to establish or maintain arrangements with other in-market television stations and implement our acquisition strategy.

Current FCC ownership rules or revised FCC ownership rules, whether revised through FCC action, judicial review or federal legislation, may limit our acquisition strategy.

FCC ownership rules currently impose significant limitations on the ability of broadcast licensees to have attributable interests in multiple media properties. One of these local market ownership restrictions, known as the television duopoly rule, provides that a single entity may hold an attributable interest in two television stations in the same DMA provided that (1) there are at least eight independently owned and operating full-power television stations in the market following the combination and (2) one of the stations is not ranked among the top four stations in the market at the time of the combination. The FCC’s current rules also permit a waiver of the duopoly rule but only if one of the two television stations is a failed or failing station, if the proposed transaction would result in the construction of an unbuilt television station or if compelling public interest factors are present, provided that a waiver applicant demonstrates that no reasonable out-of-market buyer was available. Under the existing television duopoly rule, absent a waiver, we would not be able to acquire a second station in our existing Big-Three affiliated stations’ markets because our stations and the most likely target stations would be amongst the top-four rated stations in the market. Our ability to obtain a waiver of the existing duopoly rule also is severely restricted because neither our stations nor our most likely target stations would qualify as failed, failing or unbuilt stations. As a result, we would have to demonstrate the presence of compelling public interest factors in order to obtain a waiver. We are unable to predict whether the FCC would grant such a waiver. If we were to acquire a second station in a market pursuant to a waiver of the duopoly rule, we could not sell the duopoly to a third party unless that third party also: (i) obtained a waiver at the time of the proposed sale; or (ii) acquired one of the stations directly and established an operating arrangement —through a local services agreement or otherwise—with another party who then would acquire the second station.

On June 2, 2003, the FCC voted to substantially amend many of its ownership rules. The television duopoly rule was relaxed to permit ownership of up to three stations in certain large markets and two stations in many mid-sized markets, provided that no more than one of the co-owned stations can be among the top four rated stations in the market. In the markets in which we operate our Big-Three affiliated stations, absent a waiver, we would not be able to take advantage of this new duopoly rule because our station and the most likely target stations would be amongst the top-four rated stations in the market. The FCC further declared that it would grant waivers of the top-four restriction under certain circumstances, such as in markets where it can be established that ownership consolidation in small to mid-sized television markets with 11 or fewer television stations could lead to significant public interest benefits. We are unable to predict whether the FCC would grant us a waiver pursuant to this standard. The FCC further determined that a non-conforming combination permitted by a waiver of the duopoly rule could not be transferred jointly either as a separate asset or through the transfer of control of the licensee, except by obtaining a waiver of the rule upon each transfer or by sale to certain eligible small business entities. Therefore, as is currently the case under the present duopoly rule, if we were to acquire a second station in a market pursuant to a waiver, our ability to sell or transfer that duopoly would be restricted because any potential acquirer would need to obtain a waiver from the FCC in order to own the duopoly or establish its eligibility as a small business entity or would need to acquire one of the stations directly and establish an operating arrangement with another party who then would acquire the second station.

The FCC’s modified media ownership rules have not gone into effect because on September 3, 2003, the U.S. Court of Appeals for the Third Circuit stayed the effectiveness of the new rules. On June 24, 2004, the Third Circuit issued a decision finding virtually all of the media ownership rules without support and remanding the proceeding back to the FCC for further consideration. The stay of the modified media ownership rules remains in effect pending the FCC’s review on remand, except with respect to certain limited aspects of the FCC’s media ownership order, including the FCC’s revised definition of local radio market. The modified media ownership rules also are subject to pending petitions for reconsideration filed with the FCC. We are unable to predict the eventual outcome of the reconsideration petitions or the outcome of the FCC’s review on remand. We are unable to predict the potential effect any changes would have on our acquisition strategy.

The Indenture, which governs our Notes, contains various covenants that limit our management’s discretion in the operation of our business.

Our Indenture, which governs our Notes, contains various covenants that restrict our ability and the ability of our restricted subsidiaries to, among other things:

• incur additional debt and issue preferred stock;

• make certain distributions, investments and other restricted payments;

• create certain liens;

• enter into transactions with affiliates;

• enter into agreements that restrict our restricted subsidiaries from making payments to us;

• merge, consolidate or sell substantially all of our assets;

• limit the ability of our subsidiaries to issue preferred stock;

• sell or acquire assets; and

• enter into new lines of business.

As a result of these restrictions and covenants, our management’s ability to operate our business at its discretion is limited, and we may be unable to compete effectively, pursue acquisitions or take advantage of new business opportunities, any of which could harm our business. Malara Broadcast Group’s Senior Credit Facility contains similar terms and restrictions.

If we fail to comply with the restrictions in the Indenture, a default may occur. A default would allow the trustee under the Indenture or the holders of the Notes to accelerate the related debt. A default followed by an acceleration of the Notes would also allow the trustee under the Indenture to foreclose on collateral securing such debt.

Under the Indenture, the Malara Broadcast Group companies to which the Company provides services pursuant to the local services agreements are subject to the terms of the Indenture applicable to Restricted Subsidiaries that are not Guarantors, as such terms are defined in the Indenture. Failure of the Malara Broadcast Group companies to which the Company provides services to comply with the terms of the Indenture applicable to Restricted Subsidiaries that are not Guarantors would result in a default under the Indenture, which in turn would create a default under Malara Broadcast Group’s Senior Credit Facility.

Each of Malara Broadcast Group and Four Seasons Broadcast Company may make decisions regarding the operation of its station that could reduce the amount of cash we might receive under our local services agreements with each of Malara Broadcast Group and Four Seasons Broadcast Company.

Each of Malara Broadcast Group and Four Seasons Broadcast Company are 100% owned by an independent third party. Malara Broadcast Group owns and operates WPTA and KDLH, and Four Seasons Broadcast Company owns and operates WAOE. As of March 8, 2005, we entered into various local service agreements with Malara Broadcast Group pursuant to which we provide services to Malara Broadcast Group’s stations. In return for the services we provide, we receive substantially all of the available cash, after payment of debt service costs and other expenses, generated by Malara Broadcast Group’s stations. The Company also guarantees all of the obligations incurred under Malara Broadcast Group’s Senior Credit Facility with respect to the term loan B and revolving loan, which were incurred primarily in connection with Malara Broadcast Group’s acquisition of its stations. As of September 1, 2005, we entered into various local service agreements with Four Seasons Broadcast Company pursuant to which we provide services to Four Seasons Broadcast Company’s station. The Company receives a fixed payment for services provided to Four Seasons Broadcast Company plus a commission from advertising revenues generated by the station.

We do not own Malara Broadcast Group or Malara Broadcast Group’s television stations or Four Seasons Broadcast Company or Four Seasons Broadcast Company’s station. However, we are deemed to be the primary beneficial interest holders in Malara Broadcast Group under U.S. GAAP and therefore consolidate their results as part of our consolidated results. In order for our arrangements with such companies to comply with FCC regulations, each of such companies must maintain complete control over its own stations, including ultimate control over all operations of the stations, such as programming, finances, and personnel. As a result, each such company’s equity holder and officers can make decisions with which we disagree and which could reduce the cash flow generated by these stations and, as a consequence, the amounts we receive under our local service agreements with each of Malara Broadcast Group and Four Seasons Broadcast Company. For instance, we may disagree with the programming decisions of Malara Broadcast Group or Four Seasons Broadcast Company, which programming may prove unpopular and/or may generate less advertising revenue.

A default by Malara Broadcast Group under its Senior Credit Facility (i) gives the lenders thereunder holding the Tranche B Term Loan or the Revolving Loan the right to enforce the Granite Guaranty, and (ii) triggers a default on the Indenture if the lenders thereunder accelerate the related debt.

Upon the occurrence and during the continuation of an event of default under Malara Broadcast Group’s Senior Credit Facility, the lenders thereunder holding the Tranche B Term Loan or the Revolving Loan could enforce the Granite Guaranty relating to such loans notwithstanding the existence of any dispute between Malara Broadcast Group and any such lender with respect to the existence of such event. The obligations of Granite Broadcasting Corporation under the Granite Guaranty are independent of the obligations of Malara Broadcast Group under its Senior Credit Facility and the obligations of any other guarantor of obligations of Malara Broadcast Group and a separate action or actions may be brought and prosecuted against Granite Broadcasting Corporation whether or not any action is brought against Malara Broadcast Group or any of such other guarantors and whether or not Malara Broadcast Group is joined in any such action or actions.

A default under Malara Broadcast Group’s Senior Credit Facility would also trigger a default under the Indenture if the lenders under Malara Broadcast Group’s Senior Credit Facility accelerate the debt. If there is a default under the Indenture, the trustee under the Indenture or the holders of the Notes can accelerate the debt under the Indenture.

A default by Malara Broadcast Group under its Senior Credit Facility prevents payments to the Company under the local services agreements and would permit the lenders under the Senior Credit Facility to foreclose and sell the stations owned by Malara Broadcast Group, which causes the automatic termination of the local services agreements.

Upon the occurrence and during the continuation of an event of default under Malara Broadcast Group’s Senior Credit Facility, the payments to the Company under the local services agreements would cease, but the Company would continue to be obligated to provide the services set forth in the local services agreements while such agreements are in effect. Should the lenders under the Senior Credit Facility foreclose and sell the stations owned by Malara Broadcast Group in connection with an event of default, the local services agreements would automatically terminate, and the Company would no longer receive any cash from these stations.

If Malara Broadcast Group were to enter bankruptcy, a bankruptcy court could reject the local services agreements between the Company and Malara Broadcast Group.

In certain bankruptcy cases, a debtor has the right, subject to bankruptcy court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. If Malara Broadcast Group were to enter bankruptcy, there can be no assurances that Malara Broadcast Group, or a trustee acting on behalf of Malara Broadcast Group, would affirm its local services agreements with us and continue to make payments in a timely manner under the local services agreements. Also, we could not cease performing under a local services agreement solely because of a bankruptcy of Malara Broadcast Group. Any other bankruptcy or financial difficulties of Malara Broadcast Group may negatively affect our operating results by decreasing our revenues.

Our operating results are primarily dependent on advertising revenues and, as a result, we may be more vulnerable to economic downturns than businesses in other industries.

Our operating results are primarily dependent on advertising revenues. The success of our operations depends in part upon factors beyond our control, such as:

• national and local economic conditions;

• the availability of high profile sporting events, such as the Olympics, the Super Bowl and the NCAA Men’s Basketball Tournament;

• the relative popularity of the programming on our stations;

• the demographic characteristics of our markets; and

• the activities of our competitors.

Our programming may not attract sufficient targeted viewership and we may not achieve favorable ratings. Our ratings depend partly upon unpredictable and volatile factors beyond our control, such as viewer preferences, the quality of the programming provided to us by the networks, competing programming and the availability of other entertainment activities. A shift in viewer preferences could cause our programming not to gain popularity or to decline in popularity, which could cause our advertising revenues to decline. In addition, we and those that we rely on for programming may not be able to anticipate and react effectively to shifts in viewer tastes and interests in the markets.

Because a high percentage of our operating expenses are fixed, a relatively small decrease in advertising revenue could have a significant negative impact on our results of operations.

Our business is characterized generally by high fixed costs, primarily for debt service, programming costs, operating leases and personnel. Other than commissions paid to our sales staff and outside sales agencies, our expenses do not vary significantly with the increase or decrease in advertising revenue. As a result, a relatively small change in advertising revenue could have a disproportionate effect on our financial results.

We are dependent to a significant degree on automotive advertising.

Approximately 20% of our total revenues for the year ended December 31, 2005 and 2004 consisted of automotive advertising. A significant decrease in these revenues in the future could materially and adversely affect our results of operations and cash flows, which could affect our ability to fund operations and service our debt obligations.

We have a history of net losses and a substantial accumulated deficit.

We have had net losses of $99,382,000 for the year ended December 31, 2005; $83,292,000 for the year ended December 31, 2004 and $46,948,000 for the year ended December 31, 2003, primarily as a result of amortization of intangible assets and debt service obligations. In addition, as of December 31, 2005, we had an accumulated stockholders’ deficit of $430,792,000. We may not be able to achieve or maintain profitability. The future utilization of a portion of our net operating losses for federal income tax purposes is subject to an annual limitation.

Our strategy of seeking growth through acquisitions of television stations could pose various risks and increase our leverage.

We intend to pursue selective acquisitions of television stations with the goal of improving their operating performance by applying our management’s business and growth strategy. However, we may not be successful in identifying attractive acquisition targets. Future acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results, particularly during the period immediately following any acquisitions. We may not be able to successfully implement effective cost controls, increase advertising revenues or increase audience share with respect to any acquired station. In addition, our future acquisitions may result in our assumption of unexpected liabilities and may result in the diversion of management’s attention from the operation of our business.

If we are unable to compete effectively, our revenue could decline.

The entertainment industry, and particularly the television industry, is highly competitive and is undergoing a period of consolidation and significant change. Many of our current and potential competitors have greater financial, marketing, programming and broadcasting resources than we do. Technological innovation and the resulting proliferation of television entertainment, such as cable television, wireless cable, terrestrial multi-channel video distribution and data systems, satellite-to-home distribution services, pay-per-view, digital video recorders and home video and entertainment systems, have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to new types of competition. In addition, as a result of the Telecommunications Act of 1996, the legislative ban on telephone cable ownership has been repealed and telephone companies are now permitted to seek FCC approval to provide video services to homes. If these changes result in declining advertising revenue or increased operating or programming costs, our financial condition and results of operations may suffer.

Our revenue and profitability are affected by political campaigns and the Olympics.

In the past, we have generated substantial advertising revenue from political campaign advertising, and to a lesser extent, from broadcasting the Olympics. Political advertising increases in even-numbered years, such as 2006, due to the increase in the number of candidates running for political office. Revenue from Olympic advertising occurs exclusively in even-numbered years, such as 2006, with the alternating Winter and Summer Games occurring every two years. In 2004, political election revenue contributed approximately 6.5% of total net revenues.

The revenue generated by stations we operate or provide services to could decline substantially if they fail to maintain or renew their network affiliation agreements on favorable terms, or at all.

The non-renewal or termination of a network affiliation agreement could have a material adverse effect on us. See ‘‘Business—Network affiliation’’ under Item 1. Each of the networks generally provides the affiliated stations we operate or provide services to with 22 hours of prime time programming per week in the case of the Big-Three stations and 13 hours of prime time programming per week in the case of the WB stations. On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. Each of these agreements is subject to periodic renewal. In addition, some of the network affiliation agreements are subject to earlier termination by the networks under specified circumstances including as a result of a change of control of the affiliated stations we operate or provide services to, which would generally result upon the acquisition of 50% of our voting power, with respect to the stations we own, and 50% of Malara Broadcast Group’s voting power, with respect to the stations to which we provide services. W. Don Cornwell through his ownership of all of the outstanding shares of our voting common stock, possess 100% of our voting power. Some of the networks with which our stations are affiliated have required us and other broadcast groups, upon renewal of affiliation agreements, to reduce or eliminate network affiliation compensation and, in specific cases, to make cash payments to the network, and to accept other material modifications of existing affiliation agreements. Consequently the affiliation agreements may not all remain in place and each network may not continue to provide programming or compensation to affiliates on the same basis as it currently provides programming or compensation. If this occurs, we and/or Malara Broadcast Group would need to find alternative sources of programming, which may be less attractive and more expensive. We have no reason to believe that the network affiliation agreements with the Big Three Networks will not be renewed when they expire.

While we are engaged in dialogue with potential buyers of our two stations affiliated with the WB Network, we must prepare to operate the stations as independents following the WB Network’s September 2006 cessation of operations, requiring that we find alternative sources of programming, which may be less attractive and more expensive.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. We own two stations affiliated with the WB Network, both of which are subject to sales to affiliates of AM Media Holdings, LLC under purchase and sale agreements. Each station’s buyer advised us that as a result the WB Network’s announcement, such buyer will not be able to proceed with the transaction as contemplated. On February 14, 2006, we entered into amendments to such purchase and sale agreements, pursuant to which we have the right to market each station to other potential buyers and each party has a right to terminate the purchase and sale agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party. While there may be further discussions between the Company and the buyers of the stations about the transactions, we are actively engaging in dialogue with other potential buyers because we do not presently have agreements in principle with the buyers with respect to the stations. The WB Network currently provides 13 hours of prime time programming per week to our two stations affiliated with the WB Network. Though we are engaged in dialogue with potential buyers of our two stations affiliated with the WB Network, we must prepare to operate the stations as independents following the WB Network’s September 2006 cessation of operations. We will need to find alternative sources of programming, which may be less attractive and more expensive.

Our industry is subject to significant syndicated and other programming costs, and increased programming costs could adversely affect our operating results.

Our industry is subject to significant syndicated and other programming costs. We may be exposed in the future to increased programming costs which may adversely affect our operating results. We often acquire program rights two or three years in advance, making it difficult for us to accurately predict how a program will perform. In some instances, we may have to replace programs before their costs have been fully amortized, resulting in write-offs that increase station operating costs.

Any extraordinary, newsworthy event, including hostilities or terrorist attacks, may affect our revenues and results of operations.

During 2003, we experienced a loss of advertising revenue and incurred additional broadcasting expenses due to the initiation of military action. The military action disrupted our television stations’ regularly scheduled programming and some of our clients rescheduled or delayed advertising campaigns to avoid being associated with war coverage. We expect that if the United States engages in other foreign hostilities, there is a terrorist attack against the United States or there is some other extraordinary, newsworthy event, we may lose advertising revenue and incur increased broadcasting expenses due to pre-emption, delay or cancellation of advertising campaigns and the increased costs of providing coverage of such events. We cannot predict the extent and duration of any future disruption to our programming schedule, the amount of advertising revenue that would be lost or delayed or the amount by which our broadcasting expenses would increase as a result. The loss of revenue and increased expenses could negatively affect our results of operations.

We are dependent on key personnel.

W. Don Cornwell, our Chief Executive Officer and Chairman of our Board of Directors has an employment agreement with us. The agreement provides for a two-year employment term, which is automatically renewed for subsequent two-year terms unless advance notice of nonrenewal is given (the current term under such agreement, which was automatically renewed in September 2005, expires September 19, 2007). The agreement provides that Mr. Cornwell will not engage in any business activities during the term of such agreement outside the scope of his employment with us unless approved by a majority of our independent directors. The loss of the services of certain key operating and executive personnel currently employed by us could have an adverse impact on us. There can be no assurance that the services of such personnel will continue to be made available to us. We do not maintain key-man life insurance on any of our employees.

The industry-wide mandatory conversion to digital television requires us to make significant capital expenditures for which we might not see a return on our investment.

The FCC required all commercial television stations in the United States to start broadcasting in digital format by May 1, 2002 unless the FCC granted an extension. Stations may broadcast both analog and digital signals until February 17, 2009, when they must abandon the analog format. In November 2001, the FCC released an order in which it authorized television stations to seek special temporary authorizations to construct the minimum DTV facilities required to serve their respective community of license. In its second DTV periodic review order, the FCC established July 2005 and July 2006 deadlines by which stations must maximize or replicate their analog service areas, or risk losing interference protection to their unreplicated service areas. We may not have sufficient resources to make required capital expenditures to broadcast with full power digital transmission. See ‘‘Business—FCC Regulation of Television Broadcasting’’ and ‘‘Business—Digital Television’’ under Item 1. In addition, there are efforts in Congress and the FCC to establish a firm DTV transition deadline. We cannot predict the outcome of these efforts or their impact on the Company.

It is expensive to convert from the current analog format to digital format. We have completed the upgrades to our television stations to enable them to broadcast with digital technology either with full-power or reduced-power transmissions, as authorized by the FCC. See ‘‘Business—FCC Regulation of Television Broadcasting’’ and ‘‘Business—Digital Television’’ under Item 1.

The transition to digital television, or DTV, eventually will require consumers to purchase new televisions that are capable of receiving and displaying DTV signals, or adapters to receive DTV signals and convert them to analog signals for display on their existing receivers. Currently, very few households have either a digital television or an adapter. Although the FCC has adopted some rules intended to facilitate consumers’ transition to digital television—e.g., those concerning ‘‘plug and play’’ compatibility and DTV tuners—it is possible that many households will never make the switch to digital television. See ‘‘Business—FCC Regulation of Television Broadcasting’’ and ‘‘Business—Digital Television’’ under Item 1. Such households would not be able to view our stations’ signals over-the-air if and when the FCC requires us to cease broadcasting analog signals. If this happens our investment in upgrading our stations to broadcast digitally will have been largely wasted with respect to such households and our audience share could be diminished. In addition, digital technology could expose us to additional competition since digital technology allows broadcasting of multiple channels within the additional allocated spectrum, compared to only one channel today using analog technology. We do not know now what effect this will have on the competitive landscape in our industry.

Item 2. Properties

Our principal executive offices are located in New York, New York. The lease agreement, for approximately 9,500 square feet of office space in New York, expires January 31, 2011.

The types of properties required to support each of the stations include offices, studios, transmitter sites and antenna sites. A station’s studios are generally housed with its offices in downtown or business districts. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage. The following table contains certain information describing the general character of the properties as of December 31, 2005:

Station	Status of Station (1)	Metropolitan Area and Use	Property Owned or Leased	Approximate Size (Square feet)	Expiration of Lease

WTVH	O&O	Syracuse, New York Office and Studio	Owned	41,500	—

		Onondaga, New York Tower Site	Owned	2,300	—

KSEE	O&O	Fresno, California Office and Studio	Owned	32,000	—

		Bear Mountain, Fresno County, California Tower Site	Leased	9,300	3/22/51

		Meadow Lake, California Tower Site	Leased	1,000	5/16/13

WISE	O&O (2)	Fort Wayne, Indiana Office, Studio and Tower Site	Owned	14,822	—

WPTA	LSA (2), (3)	Fort Wayne, Indiana Office, Studio and Tower Site	Owned	18,240	—

WEEK	O&O	Peoria, Illinois Office, Studio and Tower Site	Owned	20,000	—

KBJR	O&O	Duluth, Minnesota, Superior, Wisconsin Office and Studio	Owned	20,000	—
		Tower Site	Owned	3,300	—

KDLH	LSA (3)	Duluth, Minnesota, Superior, Wisconsin Office and Studio	Owned	44,845	—
		Tower Site	Owned	2,100	—

KBWB	O&O (5)	San Francisco, California Office and Studio	Leased	25,777	8/31/12
		Tower Site	Leased	2,750	2/28/10

WKBW	O&O	Buffalo, New York Office and Studio	Owned	32,000	—

		Colden, New York Tower Site	Owned	3,406	—

WDWB	O&O (5)	Southfield, Michigan Office	Leased	8,850	12/31/05
		Studio and Tower Site	Leased(4)	30,000	9/30/06

KRII	O&O	Chilsom, Minnesota Tower Site	Owned	1,250	—

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock (Nonvoting) is traded on the Over-the-Counter Bulletin Board (OTCBB) under the stock symbol GBTVK. As of March 15, 2006, the approximate number of record holders of Common Stock (Nonvoting) was 261.

The following table sets forth the closing market price ranges per share of Common Stock (Nonvoting) during 2005 and 2004, as reported beginning August 5, 2004 the Over-The-Counter Bulletin Board and until August 5, 2004 the NASDAQ Small Cap market. The quotations represent prices on such markets between dealers in securities, do not include retail markup, markdown or commission, and do not necessarily represent actual transactions.

	High			Low

2005
First Quarter	$	.45		$	.30
Second Quarter	.32			.15
Third Quarter	.45			.19
Fourth Quarter	.40			.19

2004
First Quarter	$		1.97	$		1.52
Second Quarter	1.90			.70
Third Quarter	.72			.13
Fourth Quarter	.50			.23

As of March 15, 2006 the closing price per share for our Common Stock (Nonvoting), as reported by the Over-The-Counter Bulletin Board was $0.11 per share.

There is no established public trading market for our Class A Voting Common Stock, par value $.01 per share, our Voting Common Stock. The Voting Common Stock and the Common Stock (Nonvoting) are referred to herein collectively as the Common Stock. As of March 15, 2006, the number of record holders of Voting Common Stock was one. Granite is a Controlled Company as defined by Nasdaq Marketplace Rule 4350(c)(5).

We have never declared or paid a cash dividend on our Common Stock and do not anticipate paying a dividend on our Common Stock in the foreseeable future. The payment of cash dividends on any of our equity securities is subject to certain limitations under the Indenture governing our 9 3/4 % Senior Secured Notes and under the Certificate of Designations of our 12 3/4 % Cumulative Exchangeable Preferred Stock. We are also prohibited from paying dividends on any Common Stock until all accrued but unpaid dividends on our Series A Convertible Preferred Stock, par value $.01 per share, are paid in full. All outstanding shares of Series A Preferred Stock were converted into Common Stock (Nonvoting) in August 1995. Accrued dividends on the Series A Preferred Stock, which totaled $262,844 at December 31, 2005, are payable on the date on which such dividends may be paid under our existing debt instruments.

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance
Equity compensation plans approved by security holders	6,204,441	$	5.86	3,322,759
Equity compensation plans not approved by security holders	—	—		—
Total	6,204,441	$	5.86	3,322,759

On December 22, 2003, we completed a $405,000,000 offering of our 9 3/4% Senior Secured Notes due December 1, 2010. The Senior Secured Notes have been registered and declared effective as of June 10, 2004 under the Securities Act of 1933. The registered notes are not listed on any securities exchange.

Item 6. Selected Financial Data

The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto included at Item 8 herein. The selected consolidated financial data has been derived from our audited Consolidated Financial Statements.

Our acquisitions and dispositions of operating properties during the periods reflected in the following selected financial data materially affect the comparability of such data from one period to another.

	Years Ended December 31,
	2005			2004			2003			2002			2001

	(Dollars in thousands except per share data)
Statement of Operations Data:
Net revenues	$	86, 160		$	80,500		$	73,333		$	101,437		$	79,839
Station operating expenses	60,295			56,101			53,272			62,937			73,318
Depreciation	5,060			5,154			4,966			4,714			5,034
Amortization of intangible assets	2,896			2,426			2,426			11,864			6,982
Corporate expense	10,550			13,532			11,715			9,536			9,687
Performance award expense	1,279			3,415			52			—			—
Corporate separation agreement expense	—			1,406			—			—			—
Non-cash compensation expense	412			697			896			1,508			1,473
Operating income (loss)	5,668			(2,231		)	6			10,878			(16,655		)

Interest expense, net	42,023			38,328			30,024			33,812			17,483
Non-cash interest expense	3,965			3,868			4,704			12,818			7,655
Non-cash preferred stock dividend	25,548			25,548			12,774			—			—
Gain on sale of assets	—			—			—			(192,406		)	—
Loss on extinguishment of debt (a)	—			—			3,215			15,097			2,012
Other expenses	160			1,028			575			849			1,036
(Loss) income from continuing operations before income taxes and cumulative effect of a change in accounting principle	(66,028		)	(71,003		)	(51,286		)	140,708			(44,841		)
(Benefit) provision for income taxes	(697		)	(11,714		)	(17,032		)	53,162			(27,550		)
(Loss) income from continuing operations before cumulative effect of a change in accounting principle	(65,331		)	(59,289		)	(34,254		)	87,546			(17,291		)
Cumulative effect of a change in accounting principle, net of tax benefit	—			—			—			150,479			—
(Loss) income from continuing operations	(65,331		)	(59,289		)	(34,254		)	(62,933		)	(17,291		)
Discontinued operations: (b) (c)
Loss from discontinued operations, net of taxes	(34,051		)	(24,003		)	(12,693		)	(18,635		)	(59,456		)

Net loss	$	(99,382	)	$	(83,292	)	$	(46,947	)	$	(81,568	)	$	(76,747	)

Net loss attributable to common shareholders	$	(99,382	)	$	(83,292	)	$	(59,899	)	$	(80,745	)	$	(109,311	)

Per common share:
Basic (loss) income from continuing operations before cumulative effect of a change in accounting principle	$	(3.34	)	$	(3.06	)	$	(2.48	)	$	4.71		$	(2.69	)
Basic (loss) income from continuing operations	(3.34		)		(3.06	)	(2.48		)	(3.31		)	(2.69		)
Basic loss from discontinued operations	(1.74		)	(1.24		)	(0.67		)	(1.00		)	(3.20		)
Basic net loss	$	(5.08	)	$	(4.30	)	$	(3.15	)	$	(4.31	)	$	(5.89	)

Weighted average common shares outstanding	19,559			19,366			18,991			18,749			18,569

Per common share:
Diluted (loss) income from continuing operations before cumulative effect of a change in accounting principle	$	(3.34	)	$	(3.06	)	$	(2.48	)	$	4.63		$	(2.69	)
Diluted (loss) income from continuing operations	(3.34		)	(3.06		)	(2.48		)	(3.25		)	(2.69		)
Diluted loss from discontinued operations	(1.74		)	(1.24		)	(0.67		)	(0.98		)	(3.20		)
Diluted net loss	$	(5.08	)	$	(4.30	)	$	(3.15	)	$	(4.23	)	$	(5.89	)
Weighted average common shares outstanding – assuming dilution	19,559			19,366			18,991			19,098			18,569

(a) In January 2003, we retroactively adopted Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the requirement to classify all gains and losses related to the extinguishment of debt as extraordinary items. Accordingly, prior years were reclassified to reflect extraordinary (gain) loss as a component of income from continuing operations.

(b) As of December 31, 2005 and 2004, we completed our annual impairment test in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”). At December 31, 2005 and 2004 we recorded an impairment charge of approximately $7,700,000 and $15,491,000, respectively, related to our WB affiliated stations and film impairments of approximately $4,300,000 and $3,800,000, respectively, which all have been included in discontinued operations. In addition, as of December 31, 2005, we wrote down the carrying value of our network affiliations at KBWB-TV and WDWB-TV totaling $23,381,000 as a result of the networks announcement to no longer provide programming to current WB affiliates effective in September 2006, which has been included in discontinued operations.

(c) In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the operating results of KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan are not included in our consolidated results from continuing operations for the periods presented due to the criteria for a qualifying plan of sale was achieved as of September 8, 2005 and therefore, their operations have been recorded as discontinued operations for all periods presented.

	As of December 31,
	2005			2004			2003			2002			2001
Selected Balance Sheet Data:
Total assets (b) (c)	$	405,837		$	429,929		$	504,097		$	472,184		$	731,097
Total debt	428,871			400,791			400,087			312,791			401,206
Total long-term liabilities (b)	323,754			298,392			236,810			28,173			45,387
Redeemable preferred stock (a)	—			—			—			198,125			272,109
Stockholders’ (deficit) equity	(430,792		)	(332,090		)	(249,432		)	(190,295		)	(98,144		)

(a) We adopted Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Accordingly, the redeemable preferred stock ($198,481) has been classified as a long-term liability beginning December 31, 2003.

(b) In the second quarter 2004, the Company adjusted its Goodwill and Deferred Tax Liability balances by approximately $14,926,000 to appropriately reflect the tax basis of certain assets acquired in prior years’ acquisitions. These adjustments have been reflected in 2004 and 2003 Balance Sheets disclosed herein.

(c) In accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the assets and liabilities of KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan have been classified as “held for sale” on the accompanying balance sheets. The criteria for a qualifying plan of sale was achieved on September 8, 2005 and are included in the total assets for all periods presented.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of our financial condition and results of operation provides a narrative on our financial performance and condition that should be read in conjunction with our consolidated financial statements and the accompanying notes that appear under Item 8 in this Form 10-K. It includes the following sections:

• Executive Summary

• Recent Developments

• Critical Accounting Policies and Estimates

• Results of Operations

• Liquidity and Capital Resources

• New Accounting Pronouncements

Executive Summary

We own and operate eight network affiliated television stations in geographically diverse markets reaching over 6% of the nation’s television households and have shared services agreements and advertising representation agreements (which we generally refer to as local service agreements) to provide advertising, sales, promotion and administrative services, and selected programming to two additional stations owned by Malara Broadcast Group and one additional station owned by Four Seasons Broadcast Company. As of December 31, 2005, four of our stations are affiliated with NBC, one of our stations is affiliated with ABC and one of our stations is affiliated with CBS, our Big Three Affiliates, and two of our stations are affiliated with the Warner Bros Television Network, our WB Affiliates. The NBC affiliates are KSEE-TV, Fresno-Visalia, California, WEEK-TV, Peoria-Bloomington, Illinois, KBJR-TV, Duluth, Minnesota - Superior, Wisconsin and WISE-TV, Fort Wayne, Indiana. The ABC affiliate is WKBW-TV, Buffalo, New York. The CBS affiliate is WTVH-TV, Syracuse, New York. The WB affiliates are KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan. The two Malara Broadcast Group-owned stations to which we provide services and selected programming are WPTA-TV, the ABC affiliate serving Fort Wayne, Indiana and KDLH-TV, the CBS affiliate serving Duluth, Minnesota - Superior, Wisconsin. The Four Seasons Broadcast Company-owned station to which we provide services is WAOE-TV, the UPN affiliate serving Peoria-Bloomington, Illinois. Our consolidated financial statements and accompanying notes that appear under Item 8 of this Form 10-K, unless otherwise indicated, reflect our financial condition and results of operations based on the stations owned by us on December 31, 2005.

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

Our revenues are derived principally from local and national advertising and, to a lesser extent, from network compensation for the broadcast of programming and revenues from studio rental and commercial production activities. The primary operating expenses involved in owning and operating television stations are employee salaries, depreciation and amortization, programming, advertising and promotion. Amounts referred to in the following discussion have been rounded to the nearest thousand.

Set forth below are the principal types of television revenues from continuing operations received by the television stations we own and/or operate for the periods indicated and the percentage contribution of each to the gross television revenues of our television stations.

GROSS REVENUES, BY CATEGORY,
CONSOLIDATED CONTINUING OPERATIONS

(dollars in thousands)

	Years Ended December 31,
	2005				2004				2003
	Amount		%		Amount		%		Amount		%

Local/Regional	$	53,963	53.6	%	$	45,160	47.7	%	$	44,887	51.7	%
National	36,268		36.0	%	34,357		36.3	%	33,231		38.3	%
Network Compensation	2,620		2.6	%	3,059		3.2	%	3,205		3.7	%
Political	3,215		3.2	%	8,379		8.9	%	1,818		2.1	%
Other	4,674		4.6	%	3,720		3.9	%	3,730		4.3	%
Gross Revenue	100,740		100	%	94,675		100	%	86,871		100	%
Agency Commissions	14,580				14,175				13,538
Net Revenue	$	86,160			$	80,500			$	73,333

Automotive advertising constitutes our single largest source of gross revenues, accounting for approximately 20% of our total gross revenues in 2005. Gross revenues from restaurants, paid programming and retail stores accounted for approximately 25% of our total gross revenues in 2005. Each other category of advertising revenue represents less than 5% of our total gross revenues.

We believe that inflation has not had a material impact on our results of operations for each of the three years in the period ended December 31, 2005. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.

2005 Highlights

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

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

• On March 8, 2005, we entered into a strategic arrangement with Malara Broadcast Group, under which we provide advertising sales, promotion and administrative services, and selected programming to Malara Broadcast Group-owned stations WPTA-TV and KDLH-TV in return for certain fees that are paid by Malara Broadcast Group to us. We do not own Malara Broadcast Group or its television stations. In order for both us and Malara Broadcast Group to continue to comply with FCC regulations, Malara Broadcast Group must maintain complete responsibility for and control over programming, finances, personnel and operations of its television stations. However, as a result of our guarantee of the obligations incurred under Malara Broadcast Group’s Senior Credit Facility and the revolving loan, arrangements under the local service agreements and put or call option agreements, under United States generally accepted accounting principles (“U.S. GAAP”), specifically, Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities (“Interpretation 46”), we are required to consolidate Malara Broadcast Group’s financial position, results of operations and statement of cash flows in our consolidated results. In addition, in accordance with the provisions of Interpretation 46, the Company did not account for the sale of the assets of WPTA-TV and no gain therefrom was recognized in the consolidated statements of operations and we did not apply the provisions of purchase accounting to Malara Broadcast Group’s acquisition of WPTA-TV.

• Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of borrowings pursuant to a Malara Broadcast Group credit agreement (the “Malara Broadcast Group Senior Credit Facility”). The Malara Broadcast Group Senior Credit Facility provides for two term loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Tranche A Term Loan, which was secured by a letter of credit, was repaid in full on February 10, 2006, as discussed below. The $25 million Malara Broadcast Group Tranche B Term Loan and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by us.

• On September 1, 2005, we entered into a strategic arrangement with Four Seasons Broadcast Company, under which we provide advertising sales, promotion and administrative services to Four Seasons Broadcast Company-owned station WAOE (TV) in return for certain fees that will be paid by Four Seasons Broadcast Company to us.

• On September 8, 2005, we entered into a definitive agreement (the “KBWB Purchase and Sale Agreement”) to sell substantially all of the assets of KBWB-TV, the WB affiliate serving the San Francisco, California television market, to AM Broadcasting KBWB, Inc. (the “KBWB Buyer”). On September 8, 2005, we entered into a definitive agreement (the “WDWB Purchase and Sale Agreement” and together with the KBWB Purchase and Sale Agreement, the “Purchase and Sale Agreements”) to sell substantially all of the assets of WDWB-TV, the WB affiliate serving the Detroit Michigan television market, to AM broadcasting WDWB, Inc. (the “WDWB Buyer”). The Purchase and Sale Agreements contained covenants by us not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by us for the sale of KBWB-TV was $72,500,000, before closing adjustments, which was payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by us for the sale of WDWB-TV was $87,500,000, before closing adjustments, which was payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets was $10 million, respectively. We have reclassified the operations of these stations as discontinued operations and the assets and liabilities as held for sale in our consolidated balance sheets and statements of operations in accordance with the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. (See Note 4. Discontinued Operations in the Notes to our Consolidated Financial Statements.)

Recent Developments

• On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The KBWB Buyer has advised us that as a result thereof, the KBWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between us and the KBWB Buyer about the transaction, we are actively engaging in dialogue with other potential buyers because we do not presently have an agreement in principle with the KBWB Buyer with respect to KBWB-TV. On February 14, 2006, we entered into an amendment (the “KBWB Amendment”) to the KBWB Purchase and Sale Agreement. Pursuant to the KBWB Amendment (i) Section 6.2 of the KBWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the KBWB Buyer and the Company each have the right to terminate the KBWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

• On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The WDWB Buyer has advised us that as a result of the WB Network announcement, the WDWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between us and the WDWB Buyer about the transaction, we are actively engaging in dialogue with other potential buyers because we do not presently have an agreement in principle with the WDWB Buyer with respect to WDWB-TV. On February 14, 2006, we entered into an amendment (the “WDWB Amendment”) to the WDWB Purchase and Sale Agreement. Pursuant to the WDWB Amendment (i) Section 6.2 of the WDWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the WDWB Buyer and the Company each have the right to terminate the WDWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

• On February 10, 2006, in accordance with the terms of the Malara Broadcast Group Senior Credit Facility, the letter of credit issued in March 2005 to support the $23.5 million Tranche A Term Loan was drawn upon in satisfaction of Malara Broadcast Group’s obligations to such lenders under the Malara Tranche A Term Loan following non-renewal of the letter of credit. We paid the reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities which had been pledged in support of such obligation.

• Under a Reimbursement Agreement, dated as of March 8, 2005 (the “Reimbursement Agreement”), among us, Malara Broadcast Group and certain of Malara Broadcast Group’s subsidiaries (the “Malara Borrowers”), the Malara Borrowers agreed to repay us any amounts drawn on the letter of credit plus interest at a rate of 8% per annum. We reduced to $16.6 million the amount due from the Malara Borrowers to Granite under the Reimbursement Agreement.

• On January 13, 2006, we and certain of our subsidiaries entered into a definitive agreement with Television Station Group Holdings, LLC and certain of its subsidiaries to purchase substantially all of the assets of WBNG-TV, Channel 12, the CBS-affiliated television station serving Binghamton and Elmira, New York, for $45 million in cash, subject to closing adjustments. (the “WBNG Purchase and Sale Agreement”). As of February 8, 2006, the sellers have a right to terminate the WBNG Purchase and Sale Agreement because the sales of two stations affiliated with the WB Network were not completed as of such date. As of March 30, 2006, the sellers have not exercised their right to terminate the WBNG Purchase and Sale Agreement. On March 8, 2006, the application seeking consent to assign the WBNG-TV license to our subsidiary was granted by the Federal Communications Commission (“FCC”).

• On March 13, 2006, we retained the services of Houlihan Lokey Howard & Zukin as our financial advisors to assist us with the evaluation of strategic options and to advise us on available financing and capital restructuring alternatives.

Critical Accounting Policies and Estimates

Our accounting policies are described in Note 2 of the consolidated financial statements in Item 8. We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the following policies, which were discussed with the Audit Committee of the Board of Directors, to be most critical in understanding the judgments involved in preparing our consolidated financial statements and the uncertainties that could affect our results of operations, financial condition and cash flows.

Revenue recognition

Our primary source of revenue is the sale of television time to advertisers. Revenue is recorded when the advertisements are aired. Other sources of revenue are compensation from the networks, studio rental and commercial production activities. These revenues are recorded when the programs are aired and the services are performed. Revenue from barter transactions is recognized when advertisements are broadcast and merchandise or services received are charged to expense when received or used. Barter revenue totaled $2,112,000, $1,777,000 and $1,614,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Barter expense totaled $1,633,000, $1,296,000 and $1,442,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Film Contract Rights

Film contract rights are recorded as assets at gross value when the license period begins and the films are available for broadcasting. Film contract rights are amortized on an accelerated basis over the estimated usage of the films, and are classified as current or non-current on that basis. Our accounting for long-lived film contract assets requires judgment as to the likelihood that such assets will generate sufficient revenue to cover the associated expense. We review our film contract rights for impairment by projecting the amount of revenue the program will generate over the remaining life of the contract by applying average historical rates and sell-out percentages for a specific time period and comparing it to the program’s expense. If circumstances were to change, such as the projected future revenue of a program is less than its future expense and/or the expected broadcast period is shortened or cancelled due to poor ratings, we would be required to write-off the exposed value of the program rights ratably or potentially immediately. We have written down the value of certain film contract rights at our WB stations by $ 4,346,000, $3,800,000 and $3,000,000 during the years ended December 31, 2005, 2004 and 2003, respectively, and is included on our statement of operations in “loss from discontinued operations” in each respective year. Film contract rights payable are classified as current or non-current in accordance with the payment terms of the various license agreements. Film contract rights are reflected in the consolidated balance sheet at the lower of unamortized cost or estimated net realizable value. As of December 31, 2005, the amounts of current film contract rights and non-current film contract rights were $2,836,000 and $77,000, respectively.

Goodwill and Intangible Assets

We have made acquisitions in the past for which a significant portion of the purchase price was allocated to goodwill and other identifiable intangible assets.

In accordance with Statement 142, goodwill and other intangible assets deemed to have indefinite lives are no longer being amortized, but instead are subject to annual impairment tests. We perform annual impairment tests using a discounted cash flow model. We then compare the estimated fair market value to the book value to determine if an impairment exists. Our discounted cash flow model is based on our judgment of future market conditions within the designated marketing area of each broadcast license as well as discount rates that would be used by market participants in an arms-length transaction. Our goodwill and other indefinite-lives intangible assets could be impaired if future events result in a conclusion that market conditions have declined or discount rates have increased. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. We adopted the new rule on accounting for goodwill and other intangible assets beginning on January 1, 2002. We recorded a charge to reduce the carrying value of its goodwill and other indefinite-lived assets by $95,000,000 and $114,000,000, respectively during the first quarter of 2002. The annual impairment testing required by Statement 142 was completed as of December 31, 2005. The impairment analysis resulted in a write down of the carrying value of our goodwill by $7,669,000. In addition, as a result of the announcement made by the Warner Bros. Network (the “WB”), that effective in September 2006 the WB will no longer provide programming to current WB affiliates, we wrote down the carrying value of our network affiliations by approximately $23,381,000 in the aggregate at our two WB stations, KBWB-TV and WDWB-TV. During 2004, our annual impairment testing resulted in a write down of the carrying value of our goodwill by $15,491,000, as a result of decreases in projected future cash flows from operations at certain stations. During the second quarter of 2004, we adjusted our goodwill and related deferred tax liability balances by approximately $14,926,000 to appropriately reflect the tax basis of certain assets acquired in prior years’ acquisitions. As of December 31, 2005, we had $170,000,000 in goodwill and other intangible assets net of accumulated amortization. In addition, assets held for sale at December 31, 2005 include $100,400,000 of goodwill and other intangible assets net of accumulated amortization. The recorded impairment charges and write downs of other indefinite-lived assets during 2005 and 2004 have been included as part of our discontinued operations.

We determine the value of our FCC licenses using discounted cash flow valuation method assuming a hypothetical independent station whose only identifiable asset is the FCC license. We believe that our FCC licenses have an indefinite life based on the historical basis to renew such licenses. The annual impairment testing for FCC licenses was completed as of December 31, 2005 and 2004 and did not result in any additional write down of the carrying value of our licenses.

Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. At such time as an impairment in value of a long-lived asset is identified the impairment will be measured in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as the amount by which the carrying amount of a long-lived asset exceeds its fair value. To determine fair value we employ an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate. If circumstances were to change, such as a decreased cash flow scenarios, we would be required to record impairment charges of the exposed value of the long-lived assets which were not previously recorded.

Allowance for Doubtful Accounts

We must make estimates of the uncollectibility of our accounts receivable. We specifically review historical write-off activity by market, large customer concentrations, customer credit worthiness, and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Our experience has been that the level of customer defaults has been predictable and that the allowance for doubtful accounts has been adequate to cover such defaults. If circumstances change, such as higher than expected defaults or an unexpected material adverse change in an agency’s ability to meet its financial obligation to us, our estimates of the recoverability of amounts due our company could be reduced by a material amount. As of December 31, 2005 and 2004, our allowance for doubtful accounts totaled approximately $632,000 and $896,000, respectively.

Consolidation of Variable Interest Entities

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

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

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

Results of Operations

Overview

Net revenue from continuing operations for our television group increased 7.0% due primarily to increases in non-political local and non-political national revenues. Non-political local revenue increased to $53,963,000 from $45,160,000 in 2004 or 19.5%. Non-political national revenue increased to $36,268,000 from $34,357,000 in 2004 or 5.6%. The increases in both non-political local and national revenues were primarily due to the inclusion of two additional stations in 2005, WISE-TV and KDLH-TV in our consolidated results commencing in March 2005 which were not in our consolidated results during 2004. Political revenue decreased in a non-presidential election year to $3,215,000 from $8,379,000 in 2004 or 61.6%. We continue to focus on our strong news brands and targeted sales initiatives as our foundation for local performance and growth. Overall, automotive, our largest revenue category decreased approximately 3%. We experienced growth in several other major categories, such as home remodeling, medical, insurance and competitive media which were offset by decreases in categories such as entertainment (movies and amusement parks), utilities and pharmaceuticals.

Our operating expenses are comprised of two components; (1) direct operating expenses consisting primarily of programming, news and engineering costs; and (2) selling, general and administrative expenses consisting primarily of sales, promotion and administrative costs. Operating expenses increased as a result of rising healthcare costs, increased compensation and related benefits expenses, increased promotional and marketing expenses resulting primarily from the inclusion of WISE-TV and KDLH-TV in our consolidated results commencing in March 2005. During 2006, we expect continued increases in healthcare costs and promotional and marketing expenses, which will be offset by decreased film amortization expense.

Net revenue from discontinued operations for our television group decreased 5.4% due primarily to decreases in non-political local and non-political national revenues. Non-political local revenue decreased to $19,643,000 from $20,915,000 in 2004 or 6.1%. Non-political national revenue decreased to $15,995,000 from $17,983,000 in 2004 or 11.1%. Overall, automotive, our largest revenue category decreased 29%. We experienced growth in several other major categories, such as retail stores, home remodeling and restaurants which were offset by decreases in categories such as entertainment (movies and amusement parks) and instructional schools.

Years ended December 31, 2005 and 2004

Continuing Operations

Set forth below are significant factors that contributed to our operating results from continuing operations for the years ended December 31, 2005 and 2004, respectively.

GROSS REVENUES, BY CATEGORY,

CONSOLIDATED CONTINUING OPERATIONS

(dollars in thousands)

	2005				2004
	Amount		%		Amount		%

Local/Regional	$	53,963	53.6	%	$	45,160	47.7	%
National	36,268		36.0	%	34,357		36.3	%
Network Compensation	2,620		2.6	%	3,059		3.2	%
Political	3,215		3.2	%	8,379		8.9	%
Other	4,674		4.6	%	3,720		3.9	%
Gross Revenue	100,740		100	%	94,675		100.0	%
Agency Commissions	14,580				14,175
Net Revenue	$	86,160			$	80,500

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

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

Net revenue increased $5,660,000 or 7.0% to $86,160,000 for the year ended December 31, 2005, from $80,500,000 for the year ended December 31, 2004. The increase was due to healthy increases in non-political local revenues of $8,803,000 or 19.5% and non-political national revenues of $1,911,000 or 5.6% offset by decreases in political advertising revenue during a non-election year of $5,164,000 or 61.6% and network compensation revenue of $439,000 or 14.4%. The increases in both non-political local and non-political national revenues were primarily due to the inclusion of WISE-TV and KDLH-TV in our consolidated results during the year ended December 31, 2005 which were not in our consolidated results during the same period last year. Malara Broadcast Group’s net revenues totaled $12,590,000 or 14.6% of the total net revenues during the year ended December 31, 2005.

Direct operating expenses, consisting primarily of programming, news and engineering increased $1,885,000 or 5.7% to $34,827,000 for the year ended December 31, 2005 from $32,942,000 for the same period in 2004. The increase was primarily due to increases in amortization of film contract rights, salaries and group health insurance as a result of the inclusion of WISE-TV and KDLH-TV in our consolidated results of during the year ended December 31, 2005. Selling, general and administrative expenses increased $2,310,000 or 10% to $25,469,000 for the year ended December 31, 2005 from $23,159,000 for the same period in 2004. The increase was primarily due to increases in salaries, commissions, promotional and professional fees as a result of the inclusion of WISE-TV and KDLH-TV in our consolidated results of during the year ended December 31, 2005. Malara Broadcast Group’s direct operating expenses and selling, general and administrative expenses totaled $2,525,000 of the total station expenses, after elimination of expenses relating to various local service agreements totaling approximately $12,807,000 between us and Malara Broadcast Group.

Other Consolidated Expenses

Amortization expense increased $470,000 or 19.4% during the year ended December 31, 2005 as compared to the same period in 2004. This increase was primarily due to the incremental amortization expense of two additional television stations, KDLH-TV and WISE-TV, which were acquired in March 2005. Depreciation expense decreased $95,000 or 1.8% during the year ended December 31, 2005 as compared to the same period in 2004. The decrease was primarily due to the effect of the change in estimated useful lives assigned to certain fixed assets as of January 1, 2005 in addition to fixed assets written off in the third and fourth quarters of 2004 and first two quarters of 2005, thereby resulting in lower depreciation expense during 2005. This decrease was offset, in part, by increased depreciation expense due to the incremental depreciation expense of two additional television stations, KDLH-TV and WISE-TV, which were acquired in March 2005.

Corporate expense totaled $10,550,000; a decrease of $2,982,000 or 22.0% compared to $13,532,000 for the same period in 2004.The decrease was primarily due to planned reduction in compensation and other non-personnel related expenses, offset in part by increases in professional fees related to the sale of WPTA-TV. The performance award expense for the year ended December 31, 2005 totaled $1,279,000; a decrease of $2,136,000 compared to $3,415,000 for the same period in 2004. The decrease was primarily due to the separation of a company executive for which the unvested portion of the executive’s performance award expense was accelerated during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Corporate separation agreement expense decreased $1,406,000 compared to the same period in 2004 due primarily to the separation of a company executive during the third quarter of 2004 pursuant to a Separation Agreement dated September 21, 2004. Non-cash compensation expense decreased $285,000 or 40.9% primarily due to the forfeitures of stock awards granted to certain personnel in prior years as well as the effect of prior years awards fully vesting during 2004.

Interest expense totaled $43,734,000; an increase of $4,244,000 or 10.7% compared to $39,490,000 for the year ended December 31, 2004. The increase was primarily due to the interest expense on Malara Broadcast Group’s Senior Credit Facility which totaled approximately $4,236,000. Interest income totaled $1,711,000; an increase of $549,000, or 47.2% compared to $1,162,000 for the year ended December 31, 2004. The increase was primarily due to interest earned on the company’s cash, offset by the decreased average cash balance invested during the year ended December 31, 2005 as compared to the same period in 2004. Non-cash interest expense totaled $3,965,000; an increase of $97,000 or 2.5% compared to $3,868,000 for the year ended December 31, 2004.

We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $25,548,000 during the twelve months ended December 31, 2005 and 2004 as required by Statement of Financial Accounting Standards No.150.

We recorded a current and deferred tax benefit of $697,000, compared to a current and deferred tax benefit of $11,714,000 for the year ended December 31, 2004. The decline in the tax benefit is primarily due to an increase in the valuation allowance against net operating loss carry forwards which may not be utilized in future periods.

Discontinued Operations

Set forth below are significant factors that contributed to our operating results from discontinued operations for the yeas ended December 31, 2005 and 2004, respectively.

GROSS REVENUES, BY CATEGORY,

CONSOLIDATED DISCONTINUED OPERATIONS

(dollars in thousands)

	2005				2004
	Amount		%		Amount		%

Local/Regional	$	19,643	53.2	%	$	20,915	52.8	%
National	15,995		43.3	%	17,983		45.4	%
Political	332		1.0	%	399		1.0	%
Other	938		2.5	%	313		0.8	%
Gross Revenue	36,908		100	%	39,610		100	%
Agency Commissions	5,451				6,345
Net Revenue	$	31,457			$	33,265

Net revenue from our discontinued operations decreased $1,808,000 or 5.4% to $31,457,000 from $33,265,000 due primarily to decreases in non-political national revenues of $1,988,000 and non-political local revenues of $1,272,000. The non-political national revenue decreases were primarily due to declines in the automotive, entertainment/movie, pharmaceuticals and telecommunications categories. The non-political local revenue decreases were primarily due to declines in the automotive and instructional schools categories.

Direct operating expenses from our discontinued operations, consisting primarily of programming and engineering expenses, decreased $2,800,000 or 13.4% to $18,164,000 for the year ended December 31, 2005 from $20,964,000 for the same period in 2004. The decrease was primarily due to lower amortization of film contract rights due to the effects of write-downs taken in 2004, and the replacement of expensive, unprofitable programs with less expensive, profitable programming. There were approximately $4,346,000 and $3,800,000 of film asset write-downs during the years ended December 31, 2005 and 2004, respectively. Selling, general and administrative expenses from our discontinued operations increased $560,000 or 4.3% to $13,722,000 for the year ended December 31, 2005 from $13,162,000 for the same period in 2004. The increase was primarily due to higher general and administrative expenses.

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”), we completed our annual impairment test as of December 31, 2005 and 2004. The impairment analysis resulted in us recording an impairment charge to the carrying value of goodwill of approximately $7,669,000 and $15,491,000, in 2005 and 2004, respectively. In addition, as a result of the announcement made by the WB, that effective in September 2006 the WB will no longer provide programming to current WB affiliates, we wrote down our remaining carrying value of our network affiliations by approximately $23,381,000 in the aggregate at our two WB stations, KBWB-TV and WDWB-TV. The recorded impairment charges and write downs of other intangible assets during 2005 and 2004 have been included as part of our discontinued operations.

Years ended December 31, 2004 and 2003

Continuing Operations

Set forth below are significant factors that contributed to our operating results from continuing operations for the years ended December 31, 2004 and 2003, respectively.

GROSS REVENUES, BY CATEGORY,

CONSOLIDATED CONTINUING OPERATIONS

(dollars in thousands)

	2004					2003
	Amount			%		Amount			%
Update
Local/Regional	$		45,160	47.7	%	$		44,887	51.6	%
National	34,357			36.3	%	33,231			38.3	%
Network Compensation	3,059			3.2	%	3,205			3.7	%
Political	8,379			8.9	%	1,818			2.1	%
Other	3,720			3.9	%	3,730			4.3	%
Gross Revenue	94,675			100	%	86,871			100	%
Agency Commissions	14,175					13,538
Net Revenue	$	80,500				$	73,333

Net revenue increased $7,167,000 or 9.8% to $80,500,000 for the year ended December 31, 2004, from $73,333,000 for the same period in 2003. The increase was primarily due to increases in political advertising and non-political national revenues of $6,561,000 and $1,126,000, respectively. The non-political national revenue increase was due to growth in the paid programming, food stores and department stores categories. Non-political local revenues were essentially flat. Excluding political, net revenue increased 2.2%.

Direct operating expenses, consisting primarily of programming, news and engineering increased $356,000 or 1.1% to $32,942,000 for the year ended December 31, 2004 from $32,586,000 for the same period in 2003. The increase was primarily due to increases in compensation, group health insurance and power costs associated with the launching of digital broadcasting in all of our markets during 2004. Selling, general and administrative expenses increased $2,473,000 or 12% to $23,159,000 for the year ended December 31, 2004 from $20,686,000 for the same period in 2003. The increase was primarily due to increases in compensation, group health insurance, increased sales and promotion expenses and restructuring charges at our Buffalo, New York station.

Other Consolidated Expenses

Amortization expense remained flat during the year ended December 31, 2004 compared to the same period in 2003. Depreciation expense increased $188,000 or 3.8% during the year ended December 31, 2004 compared to the same period in 2003. The increase was primarily due to increased capital expenditures in 2003 for the conversion to digital broadcasting.

Corporate expense totaled $13,532,000 an increase of $1,817,000 or 15.5% compared to same period a year earlier. The primary increase was due to increased professional fees relating to the implementation, documentation and testing for Sarbanes-Oxley Section 404 compliance. Increased healthcare costs and timing of year-end accruals also contributed to our increased corporate expense. The performance award expense for the twelve months ended December 31, 2004 totaled $3,415,000 as compared to $52,000 in the same period a year earlier. This was primarily due to the expensing of the unvested portion of a performance award earned in 2003 by an executive who departed the Company in September 2004. The corporate separation agreement expense for the twelve months ended December 31, 2004 totaled $1,406,000 and relates primarily to severance and other benefits payable to an executive who departed our Company in September 2004 pursuant to the terms of a separation agreement. Non-cash compensation expense decreased $199,000 or 22.2% primarily due to the forfeitures of stock awards granted certain personnel in prior years who are no longer employed by us as of December 31, 2004.

Interest expense totaled $39,490,000; an increase of $8,185,000 or 26.1% compared to $31,305,000 for the year ended December 31, 2003. The increase was primarily due to our 9 3/4 % Senior Secured Notes being outstanding for a full year. Interest income totaled $1,162,000; a decrease of $119,000, or 9.3% compared to the year ended December 31, 2003. The decrease was primarily due to the recognition of interest income on an interest rate hedge related to the 8 7/8% Senior Subordinated Notes in 2003. Non-cash interest expense totaled $3,868,000; a decrease of $836,000 or 17.7% primarily due to reduced amortization of deferred financing fees.

We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $25,548,000 during the twelve months ended December 31, 2004 and totaling $12,774,000 for the same period a year earlier as required by Statement of Financial Accounting Standards No.150. For the six months ended June 30, 2003, dividends on the Preferred Stock were treated as a reduction of stockholders’ equity.

We recorded a $3,215,000 loss on the early extinguishment of debt in 2003 due to the write-off of unamortized deferred financing fees associated with the debt repaid.

We recorded a current and deferred tax benefit of $11,714,000 in 2004, compared to a current and deferred tax benefit of $17,032,000 in 2003. The decline in the tax benefit is primarily due to recording additional valuation allowance against net operating loss carry forwards, which may not be utilized in future periods.

Discontinued Operations

Set forth below are significant factors that contributed to our operating results from discontinued operations for the yeas ended December 31, 2004 and 2003, respectively.

GROSS REVENUES, BY CATEGORY,

CONSOLIDATED DISCONTINUED OPERATIONS

(dollars in thousands)

	2004				2003
	Amount		%		Amount		%
Update
Local/Regional	$	20,915	52.8	%	$	21,239	49.2	%
National	17,983		45.4	%	21,555		50.0	%
Political	399		1.0	%	64		0.1	%
Other	313		0.8	%	317		0.7	%
Gross Revenue	39,610		100	%	43,175		100	%
Agency Commissions	6,345				7,964
Net Revenue	$	33,265			$	35,211

Net revenue from our discontinued operations decreased $1,946,000 or 5.5% to $33,265,000 for the year ended December 31, 2004 from $35,211,000 for the same period in 2003. The decrease was primarily due to decreases in non-political national revenues of $3,572,000 and non-political local revenues of $324,000. The non-political national revenue decreases were primarily due to declines in the automotive, paid programming and entertainment/movie categories. The non-political local revenue decreases were primarily due to declines in the fast food, department stores, and amusement parks categories.

Direct operating expenses from our discontinued operations, consisting primarily of programming and engineering expenses, decreased $4,370,000 or 17.2% to $20,964,000 for the year ended December 31, 2004 from $25,334,000 for the same period in 2003. The decrease was primarily due to lower amortization of film contract rights due to the effects of write-downs taken in 2004 and 2003, and the replacement of expensive, unprofitable programs with less expensive, profitable programming. There were approximately $3,800,000 and $3,000,000 of film asset write-downs during the year ended December 31, 2004 and 2003, respectively. Selling, general and administrative expenses from our discontinued operations decreased $265,000 or 2% to $13,162,000 for the year ended December 31, 2004 from $13,427,000 for the same period in 2003. The decrease was primarily due to decreased general and administrative expenses.

In accordance with Statement 142, we completed our annual impairment test as of December 31, 2004 and recorded an impairment charge on the carrying value of goodwill of approximately $15,491,000. We performed our annual impairment test as of December 31, 2003 and concluded that no impairment and/or write-down of goodwill and other indefinite lived assets were required. The recorded impairment charges and write downs of other indefinite-lived assets during 2005 and 2004 have been included as part of our discontinued operations.

Restructuring and Severance Charges

During 2004, we recognized a $2,027,000 restructuring charge relating to employee separations at both our corporate office and our Buffalo, New York television station. Of this total, approximately $1,406,000 related to severance and other benefits, associated with the departure of Stuart J. Beck (see Note 4, Related Parties) and administrative support staff at the corporate office which is being paid over an eighteen month period from date of separation, September 21, 2004. The remaining $621,000 includes severance and other benefits resulting from a reduction in the workforce at the Buffalo, New York television station. As of December 31, 2005, we completed the separation payments related to the Buffalo, New York restructuring charges, and reduced its accrual by approximately $10,000 to adjust for payments of benefits and amounts originally accrued.

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

At December 31, 2005, the accruals for restructuring activities were included in “other accrued liabilities” on the consolidated Balance Sheets and the related expense for the charge at the television stations is included in “selling, general and administrative expenses” and the related expense for the corporate charges are included in “corporate separation agreement expenses” on the consolidated Statement of Operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

Acquisition Charges

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

At December 31, 2005 the accruals for acquisition activities of the television station are included in “other accrued liabilities” on the consolidated Balance Sheets. These charges were recognized in accordance with the provisions of Emerging Issues Task Force Issue No. 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination.

The following is a reconciliation of the aggregate liability recorded for restructuring and acquisition charges as of December 31, 2005:

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Year Ended December 31, 2005
	December 31, 2004		Provision		Payments		December 31, 2005

Television station	$	250,000	$	1,064,000	$	1,233,000	$	81,000
Corporate	1,214,000		—		1,022,000		192,000

Total	$	1,464,000	$	1,064,000	$	2,255,000	$	273,000

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

Liquidity and Capital Resources

As of December 31, 2005, we had approximately $8,629,000 of cash and cash equivalents on hand, which excludes $24,997,500 in U.S. government securities which we pledged to support the reimbursement obligations in the event of a draw on the letter of credit that served as collateral for the Tranche A Term Loan under Malara Broadcast Group’s Senior Credit Facility. On February 10, 2006, the letter of credit issued in March 2005 to support the $23.5 million Tranche A Term Loan was drawn upon in satisfaction of Malara Broadcast Group’s obligations to such lenders under the Malara Tranche A Term Loan following non-renewal of the letter of credit. We paid our reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities which had been pledged in support of such obligation.

On June 1, 2006, we must make an interest payment of $19,744,000 on our 9 ¾ Senior Secured Notes (the “Notes”). We do not anticipate having sufficient cash on hand to make the June 1, 2006 interest payment on our Notes.

On March 13, 2006, we retained the services of Houlihan Lokey Howard & Zukin as our financial advisors to assist us in the evaluation of strategic options and to advise us on available financing and capital restructuring alternatives.

Absent changes to our capital structure and station ownership mix we will not have enough liquidity to make our interest payment on June 1, 2006 on our Notes. In order to improve our existing liquidity position and to further our business strategy, we entered into separate definitive agreements to sell our two WB affiliates (as discussed previously) and are continuing to explore the sale of our two WB affiliates and the restructuring of our company. We are actively marketing and engaging in dialogue with other potential buyers, which has resulted in interest to buy one or both of our WB stations and we continue to evaluate such interest. However, under our Indenture, our use of the net proceeds from the sale of assets is restricted. Of the net proceeds received in an asset sale, $5 million may be used for working capital purposes and the remainder must be used to either:

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

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

Assuming we are successful in selling KBWB-TV and WDWB-TV and / or restructuring our company, we believe that the available proceeds together with the cash and cash equivalents on hand and internally generated funds from operations may be sufficient to satisfy our cash requirements for our existing operations and debt service for the next twelve months. There can be no assurance that we will be successful in selling assets and restructuring our company and a lack of liquidity would have a material adverse effect on our business strategy and therefore affect our ability to continue as a going concern and make our June 1, 2006 interest payment on our Notes. The 2005 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that might result from the outcome of this uncertainty.

We have established an investment policy for investing cash that is not immediately required for working capital purposes. Our investment objectives are to preserve capital, maximize our return on investment and to ensure we have appropriate liquidity for our cash needs. The investments, when applicable, are considered to be available-for-sale as defined under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of December 31, 2005, we had approximately $8,629,000 of cash and cash equivalents (which excludes $24,997,500 of restricted U.S. Government Securities cash equivalents). As of December 31, 2005, we had no marketable securities.

Net Cash Used in Operating, Investing and Financing Activities

Net cash used in operating activities was $22,883,000 during the year ended December 31, 2005 compared to $18,723,000 during the twelve months ended December 31, 2004. The change in 2005 from 2004 was primarily due to the receipt of a $16,000,000 income tax refund during June 2004 and changes in net assets.

Net cash used in investing activities was $79,483,000 during the twelve months ended December 31, 2005 compared to $10,307,000 during the twelve months ended December 31, 2004. The change in 2005 from 2004 was primarily due to the acquisition of assets and the purchase of U.S. Government Securities during March 2005, offset by a reduction in capital expenditures due to the completion of our conversion to digital technology.

Net cash provided by financing activities was $50,137,000 during the twelve months ended December 31, 2005 compared to net cash used in financing activities of $325,000 during the twelve months ended December 31, 2004. The change in 2005 from 2004 is primarily due to the proceeds from the Malara Broadcast Group Senior Credit Facility, offset in part by increased payments of deferred financing fees.

Our 9 3/4 % Senior Secured Notes

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

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

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

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

At December 31, 2005, we were in compliance with all covenants under our Notes.

Malara Broadcast Group’s Senior Credit Facility

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV in March 2005 with the proceeds of the Malara Broadcast Group Senior Credit Facility, consisting of two terms loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Tranche A Term Loan which was secured by a letter of credit, was paid on February 10, 2006. To secure the reimbursement obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, we had pledged $25 million of U.S. Government Securities. The $25 million Malara Broadcast Group Tranche B Term Loan and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by Granite Broadcasting Corporation pursuant to a guaranty agreement (the “Granite Guaranty”).

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

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

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

Malara Broadcast Group is required to make monthly principal payments on the Revolving Loan equal to the product of (i) the Repayment Percentage (which is 25% unless there is an Event of Default or the Consolidated Loan to Stick Value is less than 70%, in which case the Repayment Percentage is 100%) and (ii) the Consolidated Excess Free Cash Flow for the month preceding the month in which such installment is due, as such terms are defined in the Malara Broadcast Group Senior Credit Facility. All such payments shall be applied first to repay the outstanding Revolving Loan to the full extent thereof (without a corresponding reduction in the Revolving Loan Commitment Amount) provided that, if the Repayment Percentage for such monthly installment is 100%, the excess 75% of such monthly installment shall be applied first to repay the outstanding Revolving Loan to the full extent thereof and second to repay the outstanding Tranche B Term Loan to the full extent thereof. For the year ended December 31, 2005, the total principal payments made on the Revolving Loan approximated $1,021,000.

At December 31, 2005, Malara Broadcast Group was in compliance with all covenants under the Malara Broadcast Group Senior Credit Facility.

Under a Reimbursement Agreement dated as of March 8, 2005 (the “Reimbursement Agreement”) among us, Malara Broadcast Group and certain of Malara Broadcast Group’s subsidiaries ( “Malara Borrowers”), the Malara Borrowers agreed to repay us any amounts drawn on the letter of credit plus interest at a rate of 8% per annum. We reduced to $16.6 million the amount due from the Malara Borrowers to us under the Reimbursement Agreement.

Our 12 3/4 % Cumulative Exchangeable Preferred Stock

Under the terms of the Certificate of Designations for our 12 3/4 % Cumulative Exchangeable Preferred Stock (the “Preferred Stock”), we were required to make the semi-annual dividends on such shares in cash beginning October 1, 2002. The cash payment of dividends had been restricted by the terms of our previous senior credit agreement and indentures and is prohibited under the Indenture, which governs our Notes. Consequently we have not paid the semi-annual dividend due to the holders since October 1, 2002. During the year ended December 31, 2005, a dividend payment of $25,548,000 accrued on our Preferred Stock. As of December 31, 2005, we have recorded an aggregate of $95,804,000 in accrued dividends on our Preferred Stock. Since three or more semi-annual dividend payments have not been paid, the holders of the Preferred Stock have the right to elect the lesser of two directors or that number of directors constituting 25% of the members of the Board of Directors. Effective October 24, 2005, the holders of the majority of the Preferred Stock exercised their right to elect two directors to the Board of Directors of the Company. We are restricted from paying cash dividends under the Indenture, which governs our Notes, and do not anticipate paying cash dividends on our Preferred Stock in the foreseeable future.

Film Payments

As part of an overall effort to reduce station operating expenses, we have continued to make progress replacing expensive unprofitable programming with less expensive, profitable programming.

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

Film payments from our discontinued operations totaled $11.7 million for year ended December 31, 2005 as compared to $18.8 million for the year ended December 31, 2004.

No Off-Balance Sheet Arrangements

At December 31, 2005, 2004, and 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. All of our arrangements with Malara Broadcast Group are on-balance sheet arrangements.

Capital and Commercial Commitments

The following table and discussion reflect our significant contractual obligations and other commercial commitments related to continuing operations as of December 31, 2005:

	Payment Due by Period
Capital Commitment	Total		2006		2007 - 2008		2009 - 2010		Thereafter

9 3/4% Senior Secured Notes due 2010	$	405,000,000	$	—	$	—	$	405,000,000	$	—
Interest on Senior Secured Notes	194,147,000		39,488,000		78,975,000		75,684,000		—
Malara Broadcast Group Senior Credit Facility (b) (e)	29,720,000		2,579,000		6,772,000		20,369,000		—
Interest on Senior Credit Facility (c) (e)	12,012,000		3,490,000		5,782,000		2,740,000		—
Program contract commitments - current	3,847,000		3,658,000		189,000		—		—
Program contract commitments - future (d)	17,212,000		1,501,000		8,621,000		6,282,000		808,000
Operating leases	2,831,000		602,000		1,044,000		961,000		224,000
12 3/4% Cumulative Exchangeable Preferred Stock, including accrued dividends (a)	377,670,000		—		—		377,670,000		—
Restructuring and severance	192,000		192,000		—		—		—
Total capital and commercial commitments	$	1,042,631,000	$	51,510,000	$	101,383,000	$	888,706,000	$	1,032,000

(a) As of December 31, 2005, the Cumulative Exchangeable Preferred Stock, including accrued dividends totaled $294,996,000. The table above includes the balance as of December 31, 2005 and the expected accrued dividends through April 2009, the date of redemption. Payment of cash dividends are restricted by the terms of the Indenture, which governs our existing Senior Secured Notes.

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

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

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

(e) Amounts reflect capital commitments subsequent to February 10, 2006, whereby the letter of credit issued in March 2005 to support the $23.5 million Tranche A Term Loan of the Malara Broadcast Group’s Senior Credit Facility was drawn upon in satisfaction following non-renewal of the letter of credit. The Company paid its reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities which had been pledged in support of such obligation. Amounts may vary from commitments listed within our footnotes to our consolidated financial results herein.

The following table and discussion reflect our significant contractual obligations and other commercial commitments related to discontinued operations as of December 31, 2005:

	Payment Due by Period
Capital Commitment	Total			2006			2007 - 2008			2009 - 2010			Thereafter

Program contract commitments – current	$		32,292,000	$		19,510,000	$		9,853,000	$		2,929,000	$		—
Program contract commitments – future (a)	22,721,000			1,504,000			7,125,000			8,784,000			5,308,000
WB Affiliation	3,154,000			3,154,000			—			—			—
Operating leases	10,030,000			1,390,000			2,263,000			1,958,000			4,419,000

Total capital and commercial commitments	$	68,197,000		$	25,558,000		$	19,241,000		$	13,671,000		$	9,727,000

GRANITE BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
	2005			2004			2003

Net revenues	$	86,159,543		$	80,499,512		$	73,333,409
Station operating expenses:
Direct operating expense (exclusive of depreciation and amortization expenses shown separately below)	34,883,041			32,941,728			32,586,129
Selling, general and administrative expenses (exclusive of depreciation and amortization expenses shown separately below)	25,411,802			23,159,012			20,686,338
Depreciation	5,059,406			5,154,326			4,966,167
Amortization of intangible assets	2,895,768			2,425,909			2,425,911
Corporate expense	10,550,430			13,532,344			11,715,412
Performance award expense	1,279,188			3,414,698			52,247
Corporate separation agreement expense	—			1,406,442			—
Non-cash compensation expense (1)	411,862			696,522			895,539

Operating income (loss)	5,668,046			(2,231,469		)	5,666

Other expenses (income):
Interest expense	43,734,355			39,489,942			31,305,297
Interest income	(1,710,937		)	(1,162,476		)	(1,281,251		)
Non-cash interest expense	3,965,229			3,867,838			4,703,841
Non-cash preferred stock dividend	25,547,844			25,547,844			12,773,922
Loss on extinguishment of debt	—			—			3,214,524
Other	159,447			1,028,753			575,654
Loss from continuing operations before income taxes	(66,027,892		)	(71,003,370		)	(51,286,321		)
(Benefit) provision for income taxes:
Current	170,802			216,400			(16,110,412		)
Deferred	(867,506		)	(11,930,701		)	(921,277		)
Total benefit for income taxes	(696,704		)	(11,714,301		)	(17,031,689		)
Loss from continuing operations	(65,331,188		)	(59,289,069		)	(34,254,632		)
Discontinued operations:
Loss from discontinued operations, net of taxes	(34,050,626		)	(24,002,606		)	(12,693,240		)
Net loss		(99,381,814	)		(83,291,675	)		(46,947,872	)
Dividends and accretion on redeemable preferred stock	—			—			(12,951,558		)
Net loss attributable to common shareholders	$	(99,381,814	)	$	(83,291,675	)	$	(59,899,430	)

Basic and diluted net loss per share from continuing operations	$	(3.34	)	$	(3.06	)	$	(2.48	)
Basic and diluted net loss per share from discontinued operations	(1.74		)	(1.24		)	(0.67		)
Basic and diluted net loss per share	$	(5.08	)	$	(4.30	)	$	(3.15	)

Weighted average common shares outstanding	19,558,756			19,365,950			18,990,919

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

	For the Years Ended December 31,
	2005		2004		2003
Station operating expenses	$	78,605	$	112,520	$	139,269
Corporate expense	333,257		584,002		756,270
Non-cash compensation expense	$	411,862	$	696,522	$	895,539

See accompanying notes.

GRANITE BROADCASTING CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31,
	2005			2004

Assets

Current assets:
Cash and cash equivalents	$	8,629,044		$	60,858,710
Restricted cash equivalents	24,997,500			—
Marketable securities, at fair value	—			5,603,500
Accounts receivable, less allowance for doubtful accounts ($632,156 in 2005 and $896,465 in 2004)	22,388,546			20,551,203
Film contract rights	2,835,827			3,776,749
Other current assets	6,361,111			3,176,834
Assets held for sale	116,183,354			158,142,996
Total current assets	181,395,382			252,109,992

Property and equipment, net	41,691,267			37,229,555
Film contract rights	76,562			157,842
Other non current assets	734,975			8,384,731
Deferred financing fees, less accumulated amortization ($4,334,405 in 2005 and $1,989,038 in 2004)	11,757,197			11,760,080
Goodwill	60,320,347			28,937,539
Broadcast licenses, net	44,686,292			37,979,394
Network affiliations, net	65,174,688			53,370,047
Total assets	$	405,836,710		$	429,929,180

Liabilities and stockholders’ deficit

Current liabilities:
Accounts payable	$	1,352,131		$	1,063,782
Accrued interest	3,290,625			3,290,625
Other accrued liabilities	7,188,091			6,277,190
Film contract rights payable	3,658,253			5,013,574
Current portion of long-term debt	25,844,000			—
Other current liabilities	6,026,247			1,133,678
Liabilities held for sale	36,930,893			46,056,768
Total current liabilities	84,290,240			62,835,617

Long-term debt	428,871,456			400,791,298
Film contract rights payable	188,727			370,890
Deferred tax liability	21,560,807			19,347,007
Redeemable preferred stock	199,191,138			198,835,862
Accrued dividends on redeemable preferred stock	95,804,417			70,256,573
Other non current liabilities	7,008,694			9,582,081

Stockholders’ deficit:
Common stock: 41,000,000 shares authorized consisting of 1,000,000 shares of Class A Common Stock, $.01 par value, and 40,000,000 shares of Common Stock (Nonvoting), $.01 par value; 98,250 shares of Class A Common Stock and 19,480,142 shares of Common Stock (Nonvoting) (19,283,924 shares at December 31, 2004) issued and outstanding at December 31, 2005	195,783			193,820
Additional paid-in capital	393,701			361,088
Accumulated other comprehensive loss	—			(12,914		)
Accumulated deficit	(430,792,098		)	(331,410,284		)
Less: Unearned compensation	(480		)	(346,183		)
Treasury stock, at cost	(875,675		)	(875,675		)
Total stockholders’ deficit	(431,078,769		)	(332,090,148		)
Total liabilities and stockholders’ deficit	$	405,836,710		$	429,929,180

See accompanying notes.

GRANITE BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Years Ended December 31, 2003, 2004 and 2005

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

Balance as of December 31, 2002	$	1,785		$	185,815	$	—		$	—		$	(188,779,415	)	$	(851,334	)	$	(851,924	)	$	(190,295,073	)
Dividends on redeemable preferred stock						(382,600		)				(12,391,322		)							(12,773,922		)
Accretion of offering costs related to Cumulative Exchangeable Preferred Stock						(177,636		)													(177,636		)
Grant of stock award under stock plans						402,900									(402,900		)				—
Exercise of stock options				175		26,075															26,250
Issuance of Common Stock (Nonvoting)				2,351		(2,351		)													—
Repurchase of Common Stock (Nonvoting)																		(23,751		)	(23,751		)
Stock expense related to stock plans						133,612									431,133						564,745
Discount on loans to officers															195,453						195,453
Net loss												(46,947,872		)							(46,947,872		)
Balance at December 31, 2003	1,785			188,341		—			—			(248,118,609		)	(627,648		)	(875,675		)	(249,431,806		)
Conversion of Class A to Class B	(803		)	803																	—
Grant of stock award under stock plans						180,885									(180,885		)				—
Issuance of Common Stock (Nonvoting)				3,694		(3,694		)													—
Stock expense related to stock plans						183,897									252,020						435,917
Discount on loans to officers															210,330						210,330
Net loss												(83,291,675		)							(83,291,675		)
Unrealized loss on investment									(12,914		)										(12,914		)
Comprehensive loss																					(83,304,589		)
Balance at December 31, 2004	982			192,838		361,088			(12,914		)	(331,410,284		)	(346,183		)	(875,675		)	(332,090,148		)
Issuance of Common Stock (Nonvoting)				1,963		(1,963		)													—
Stock expense related to stock plans						41,838									149,211						191,049
Forfeiture of stock award under stock plans						(7,262		)							7,262						—
Discount on loans to officers															189,230						189,230
Net loss												(99,381,814		)							(99,381,814		)
Realized gain on investment									12,914												12,914
Comprehensive loss																					(99,368,900		)
Balance at December 31, 2005	$	982		$	194,801	$	393,701		$	—		$	(430,792,098	)	$	(480	)	$	(875,675	)	$	(431,078,769	)

See accompanying notes.

GRANITE BROADCASTING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2005			2004			2003

Cash flows from operating activities:
Net loss	$	(99,381,814	)	$	(83,291,675	)	$	(46,947,872	)

Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	6,938,315			7,892,924			9,976,310
Impairment of Intangibles	31,049,507			15,491,327			—
Depreciation	5,989,768			6,429,964			6,285,077
Future affiliation payment obligation write downs	(2,765,890		)	—			—
Performance award expense	1,279,188			3,414,698			52,247
Non-cash compensation expense	411,862			696,522			895,539
Non-cash interest expense	4,332,336			4,198,603			4,969,421
Non-cash preferred stock dividend	25,547,844			25,547,844			12,773,922
Film amortization and impairment	18,305,737			21,672,744			25,921,688
Deferred tax benefit	(696,704		)	(11,930,701		)	(921,277		)
Loss on extinguishments of debt	—			—			3,214,524
Change in assets and liabilities net of effects from acquisitions:
Decrease in accounts receivable	583,079			913,762			1,746,672
Increase (decrease) in accrued liabilities	447,491			2,641,030			(2,073,818		)
(Decrease) increase in accounts payable	(68,988		)	(1,044,437		)	95,998
WB affiliation payment	(1,261,714		)	(2,523,428		)	(2,096,753		)
Decrease (increase) in income tax receivable	—			16,326,799			(10,991,953		)
Increase in film contract rights and other assets	(7,313,133		)	(17,616,749		)	(23,488,240		)
Decrease in film contract rights payable and other liabilities	(6,280,138		)	(7,542,427		)	(186,005		)
Net cash used in operating activities	(22,883,254		)	(18,723,200		)	(20,774,520		)

Cash flows from investing activities:
Sales (purchases) of marketable securities and other investments	5,598,815			(5,496,847		)	—
Payment for acquisition of assets	(56,306,366		)	—			—
Purchase of U.S. Government Securities	(24,997,500		)	—			—
Capital expenditures	(3,778,174		)	(4,810,645		)	(12,652,554		)
Net cash used in investing activities	(79,483,225		)	(10,307,492		)	(12,652,554		)

Cash flows from financing activities:
Proceeds from senior credit facility	53,500,000			—			—
Proceed from senior secured notes	—			—			400,067,100
Repayment of bank debt	—			—			(316,677,910		)
Payment of deferred financing fees	(2,342,484		)	(324,593		)	(14,070,217		)
Payment of senior credit facility	(1,020,703		)	—			—
Repurchase of common stock	—			—			(23,751		)
Exercise of stock options	—			—			26,250
Net cash provided by (used in) financing activities	50,136,813			(324,593		)	69,321,472

Net (decrease) increase in cash and cash equivalents	(52,229,666		)	(29,355,285		)	35,894,398
Cash and cash equivalents, beginning of year	60,858,710			90,213,995			54,319,597
Cash and cash equivalents, end of year	$	8,629,044		$	60,858,710		$	90,213,995

Supplemental information:
Cash paid for interest	$	42,970,878		$	37,184,063		$	33,473,446
Cash paid for income taxes	177,266			177,070			832,765
Non-cash capital expenditures	309,110			186,266			142,335
Cumulative exchangeable preferred stock dividend	—			—			12,773,922

See accompanying notes.

GRANITE BROADCASTING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Operations of the Company

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

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

In September 2005, the Company entered into a strategic arrangement with Four Seasons Broadcast Company, under which the Company provides advertising sales, promotion and administrative services, and selected programming to WAOE-TV under local services agreements. The Company does not own Four Seasons Broadcast Company or its television stations, and pursuant to Interpretation 46, the Company is not deemed to be the primary beneficiary of Four Seasons Broadcast Company and therefore, has not consolidated their results with the Company’s as of December 31, 2005.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of a Senior Credit Facility (the “Malara Broadcast Group Senior Credit Facility”) consisting of two terms loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Term Tranche A Loan which was secured by a letter of credit was repaid February 10, 2006, as discussed below. To secure the reimbursement obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company had pledged $25 million of U.S. Government Securities. On February 10, 2006, the letter of credit issued in March 2005 to support the $23.5 million Tranche A Term Loan was drawn upon in satisfaction of Malara Broadcast Group’s obligations to such lenders under the Malara Tranche A Term Loan following non-renewal of the letter of credit. The Company paid its reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities which had been pledged in support of such obligation. The $25 million Malara Broadcast Group Tranche B Term Loan and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by the Company.

On September 8, 2005, the Company entered into a definitive agreement (the “KBWB Purchase and Sale Agreement”) to sell substantially all of the assets of KBWB-TV, the WB affiliate serving the San Francisco, California television market, to AM Broadcasting KBWB, Inc. (the “KBWB Buyer”). In addition, on September 8, 2005, the Company entered into a definitive agreement (the “WDWB Purchase and Sale Agreement” and together with the KBWB Purchase and Sale Agreement, the “Purchase and Sale Agreements”) to sell substantially all of the assets of WDWB-TV, the WB affiliate serving the Detroit, Michigan television market, to AM broadcasting WDWB, Inc. (the “WDWB Buyer”). The Purchase and Sale Agreements contain covenants by the Company not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by the Company for the sale of the assets of KBWB-TV was $72,500,000, before closing adjustments, which was payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by the Company for the sale of the assets of WDWB-TV was $87,500,000, before closing adjustments which was payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets is $10 million, respectively.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The KBWB Buyer has advised the Company that as a result thereof, the KBWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between the Company and the KBWB Buyer about the transaction, the Company is actively engaging in dialogue with other potential buyers because the Company does not presently have an agreement in principle with the KBWB Buyer with respect to KBWB-TV and anticipates that it will complete a sale of KBWB-TV within the next twelve months but there can be no assurances that the Company will be successful in identifying another buyer. On February 14, 2006, the Company entered into an amendment (the “KBWB Amendment”) to the KBWB Purchase and Sale Agreement. Pursuant to the KBWB Amendment (i) a no shop provision was deleted in its entirety and (ii) the KBWB Buyer and the Company each have the right to terminate the KBWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The WDWB Buyer has advised the Company that as a result of the WB Network announcement, the WDWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between the Company and the WDWB Buyer about the transaction, the Company is actively engaging in dialogue with other potential buyers because the Company does not presently have an agreement in principle with the WDWB Buyer with respect to WDWB-TV and anticipates that it will complete a sale of WDWB-TV within the next twelve months but there can be no assurances that the Company will be successful in identifying another buyer. On February 14, 2006, the Company entered into an amendment (the “WDWB Amendment”) to the WDWB Purchase and Sale Agreement. Pursuant to the WDWB Amendment (i) a no shop provision was deleted in its entirety and (ii) the WDWB Buyer and the Company each have the right to terminate the WDWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

Over the last three years, the Company has experienced annual operating losses and at December 31, 2005 had unrestricted cash and accumulated deficit of $8,629,000 and $430,792,000, respectively. On June 1, 2006, the Company must make an interest payment of $19,744,000 on its 9 3/4 % Senior Secured Notes (the “Notes”). The Company does not anticipate having sufficient cash on hand to make the June 1, 2006 interest payment on its Notes.

On March 13, 2006, the Company retained the services of Houlihan Lokey Howard & Zukin as its financial advisors to assist the Company in the evaluation of strategic options and to advise us on available financing and capital restructuring alternatives.

Absent changes to its capital structure and station ownership mix, the Company will not have enough liquidity to make the June 1, 2006 interest payment on its Notes. In order to improve the Company’s existing liquidity position and to further the Company’s business strategy, the Company had entered into separate definitive agreements to sell its two WB affiliates (as discussed above) and is continuing to explore the sale of the two WB affiliates and the restructuring of the Company. However, under its Indenture, the Company’s use of the net proceeds from the sale of assets is restricted. Of the net proceeds received in an asset sale, $5 million may be used for working capital purposes and the remainder must be used either:

Assuming the Company is successful in selling the KBWB-TV and WDWB-TV, selling additional assets and / or restructuring the Company, management believes that the available proceeds together with the cash and cash equivalents on hand and internally generated funds from operations may be sufficient to satisfy our cash requirements for our existing operations and debt service for the next twelve months. However, a lack of liquidity would have a material adverse effect on the Company’s business strategy and therefore affect its ability to continue as a going concern and make our June 1, 2006 interest payment on our Notes. The 2005 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

On January 13, 2006, the Company and certain of its subsidiaries entered into a definitive agreement with Television Station Group Holdings, LLC and certain of its subsidiaries to purchase substantially all of the assets of WBNG-TV, Channel 12, the CBS-affiliated television station serving Binghamton and Elmira, New York, for $45 million in cash, subject to closing adjustments. (the “WBNG Purchase and Sale Agreement”). As of February 8, 2006, the sellers have a right to terminate the WBNG Purchase and Sale Agreement because the sales of the Company’s two stations affiliated with the WB Network were not completed as of such date. As of March 30, 2006, the sellers have not exercised their right to terminate the WBNG Purchase and Sale Agreement. On March 8, 2006, the application seeking consent to assign the WBNG-TV license to the Company’s subsidiary was granted by the Federal Communications Commission (“FCC”).

Note 2 - Summary of Significant Accounting Policies

Financial statement presentation

The consolidated financial statements include the accounts of Granite Broadcasting Corporation, its wholly owned subsidiaries and the accounts of independently-owned Malara Broadcast Group where it is deemed that the Company is the primary beneficiary of a variable interest entity in accordance with Interpretation 46. All intercompany account balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. In addition, the Company reduced goodwill during the year ended 2004 by $14,926,000 to appropriately reflect the tax basis of certain assets acquired in prior years’ acquisitions which have been reflected in the December 31, 2004 Balance Sheet disclosed herein and had no effect on the Company’s Statement of Operations or Cash Flows.

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

Discontinued Operations

In accordance with the provisions of Statement of Financial Accounting Standards No. 144 (“Statement 144”), Accounting for the Impairment or Disposal of Long-Lived Assets, the operating results of KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan are not included in our consolidated results from continuing operations for the years ended December 31, 2005, 2004 and 2003 since the asset sale agreements for KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan, each meet the criteria for a qualifying plan of sale. The Company is committed to a plan to sell these assets, the assets are available for immediate sale, and the Company is actively seeking buyers and marketing these assets and believes that the sale of the assets is probable at prices that are reasonable in relation to their current fair value. The assets and liabilities being disposed of have been classified as “held for sale” on the accompanying balance sheets and their operations have been recorded as discontinued operations. Discontinued operations have not been segregated in the consolidated statement of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and statements of operations. Their financial position and results of operations have been reclassified accordingly for all periods presented. (See Note 4 Discontinued Operations, for further details.)

Revenue recognition

The Company’s primary source of revenue is the sale of television time to advertisers. Revenue is recorded when the advertisements are aired and collectibility is reasonably assured. Other sources of revenue are compensation from the networks, studio rental and commercial production activities. These revenues are recorded when the programs are aired and the services are performed. Revenue from barter transactions is recognized when advertisements are broadcast and merchandise or services received are charged to expense when received or used.

Allowance for Doubtful Accounts

The Company makes estimates of the uncollectibility of accounts receivable and specifically reviews historical write-off activity by market, large customer concentrations, customer credit worthiness, and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Historically, the level of customer defaults has been predictable and the allowance for doubtful accounts has been adequate to cover such defaults.

Intangibles

Intangible assets at December 31 are summarized as follows:

	2005			2004

Goodwill	$	74,088,000		$	42,706,000
Network affiliations	94,292,000			79,591,000
Broadcast licenses	53,514,000			46,807,000
	221,894,000			169,104,000
Accumulated amortization	(51,713,000		)	(48,817,000		)

Net intangible assets	$	170,181,000		$	120,287,000

As of December 31, 2005 and 2004, the Company’s intangible assets and related accumulated amortization consisted of the following:

	December 31, 2005					December 31, 2004
	Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization

Intangible assets subject to amortization:
Network affiliation agreements	$	94,292,000	$	(29,117,000	)	$	79,591,000	$	(26,221,000	)

Intangible assets not subject to amortization:
Goodwill	$	74,088,000	$	(13,768,000	)	$	42,706,000	$	(13,768,000	)
Broadcast licenses	53,514,000		(8,828,000		)	46,807,000		(8,828,000		)
	$	127,602 ,000	$	(22,596,000	)	$	89,513,000	$	(22,596,000	)

The Company amortizes its network affiliation agreements for which it does not make contractual payments using an estimated useful life of 25 years and amortizes its network affiliation agreements for which it makes contractual payments over the life of the contract. The Company recorded amortization expense of $2,896,000, $2,426,000 and $2,426,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the succeeding 5 years are as follows: 2006: $3,014,000; 2007: $3,014,000; 2008: $3,014,000; 2009: $3,014,000; and 2010: $3,014,000. As acquisitions and dispositions occur in the future, these amounts may vary.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. At such time as an impairment in value of a long-lived asset is identified, except for goodwill and other intangible assets deemed to have indefinite lives, the impairment will be measured in accordance with Statement 144, as the amount by which the carrying amount of a long-lived asset exceeds its fair value. A present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate, is used to determine fair value. There were no impairments of long-lived assets at December 31, 2005.

Deferred financing fees

On December 22, 2003, the Company completed an offering of the Notes. Proceeds from the Notes were used, in part, to (i) repay all outstanding borrowings, plus accrued interest, under the Company’s then outstanding senior credit agreement, (ii) to redeem at par, plus accrued interest, all of the 9 3/8% and 10 3/8% Senior Subordinated Notes due 2005 and (iii) to repurchase at par, plus accrued interest, all of the 8 7/8% Senior Subordinated Notes due 2008. The remaining proceeds were invested in short-term securities as well as being used for general working capital purposes. The unamortized deferred financing fees related to the Company’s senior credit agreement and the Company’s senior subordinated notes of $3,215,000 were written off in 2003. The Company incurred fees of $ 13,749,000 in connection with the sale of the Notes. These fees are being amortized over seven years. In connection with entering into the Malara Broadcast Group Senior Credit Facility in 2005, the Company incurred fees of $ 2,342,000, which are being amortized over 5 years. As a result of the February 10, 2006 repayment of Tranche A Term Loan, approximately $709,000 of unamortized deferred financing fees will be written off in the first quarter of 2006.

Property and equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, by asset classifications, ranging from a period of 3 to 40 years. Prior to January 1, 2005 property and equipment were being depreciated on a straight-line basis ranging from 3 to 35 years. On January 1, 2005, the Company revised the estimated useful lives to reflect the revised expected useful life of such assets to 3 to 40 years. This change decreased total depreciation expense during the year ended December 31, 2005 by approximately $700,000, or $0.03 per diluted share. Maintenance and repairs are charged to operations as incurred.

Film contract rights

Film contract rights are recorded as assets at gross value when the license period begins and the films are available for broadcasting. Film contract rights are amortized on an accelerated basis over the estimated usage of the films, and are classified as current or non-current on that basis. The Company’s accounting for long-lived film contract assets requires judgment as to the likelihood that such assets will generate sufficient revenue to cover the associated expense. The Company reviews its film contract rights for impairment by projecting the amount of revenue the program will generate over the remaining life of the contract by applying average historical rates and sell-out percentages for a specific time period and comparing it to the program’s expense. If the projected future revenue of a program is less than its future expense and/or the expected broadcast period is shortened or cancelled due to poor ratings, the Company would be required to write-off the exposed value of the program rights ratably or potentially immediately. The Company has written down the value of certain film contract rights at its two WB stations by $ 4,346,000, $3,800,000 and $3,000,000 during the years ended December 31, 2005, 2004 and 2003, respectively, and is included on the statement of operations in “loss from discontinued operations” in each respective year. Film contract rights payable are classified as current or non-current in accordance with the payment terms of the various license agreements. Film contract rights are reflected in the consolidated balance sheet at the lower of unamortized cost or estimated net realizable value. As of December 31, 2005, the amounts of current film contract rights and non-current film contract rights were $2,836,000 and $77,000, respectively.

At December 31, 2005, the obligation for programming that had not been recorded because the program rights were not available for broadcasting aggregated $17,212,000.

Barter transactions

Revenue from barter transactions is recognized when advertisements are broadcast and merchandise or services received are charged to expense when received or used. Barter revenue totaled $2,112,000, $1,777,000 and $1,614,000 for the years ended December 31, 2005, 2004 and 2003 respectively. Barter expense totaled $1,633,000, $1,296,000 and $1,442,000 for the years ended December 31, 2005, 2004 and 2003 respectively.

Advertising

The cost of advertising is expensed as incurred. Advertising expense was $497,000, $421,000 and $406,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes. The significant estimates made by management include the allowance for doubtful accounts, the recoverability of film contract rights and the useful lives and carrying value of tangible and intangible assets. Actual results could differ from those estimates.

Cash Equivalents and Investments in Marketable Securities

All highly liquid investments with a maturity of ninety days or less from the date of purchase are considered cash equivalents. Marketable securities are classified as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. These securities are carried at fair market value based on current market quotes. Unrealized gains and losses are reported in stockholders’ equity as a separate component of other comprehensive income / (loss) until realized. Gains and losses on securities sold are based on the specific identification method. The Company does not hold these securities for speculative or trading purposes. Marketable securities, which include direct obligations of the U.S. Government, domestic commercial paper and domestic certificates of deposits, have maturities of one year or less and have active markets to ensure portfolio liquidity. At December 31, 2005, the Company did not have any marketable securities.

Restricted Cash Equivalents

At December 31, 2005, the $23.5 million Tranche A Term Loan under the Malara Broadcast Group Senior Credit Facility is secured by a letter of credit. To secure the reimbursement obligations in the event of a draw on the letter of credit and pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company pledged $25 million of U.S. Government Securities, which are not available for working capital or any other purposes and held in escrow. As of December 31, 2005, the restricted U.S. Government Securities totaled $24,997,500.

On February 10, 2006, in accordance with the terms of the Malara Broadcast Group’s Senior Credit Facility, the letter of credit issued in March 2005 (see Note 10.) to support the $23.5 million Tranche A Term Loan was drawn upon in satisfaction of Malara Broadcast Group’s obligations to such lenders Loans under the Malara Tranche A Term Loan following non-renewal of the letter of credit. The Company paid its reimbursement obligation to the letter of credit issuer on February 10, 2006, using U.S. government securities that had been pledged in support of such obligation.

Stock-Based Compensation

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

The Company accounts for stock option grants under the recognition and measurement principles of Accounting Principles Board (“APB”) No 25, Accounting for Stock Issued to Employees, and related interpretations and the Company complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation as amended by SFAS No. 148. Under APB No. 25, because the exercise price of the Company’s stock options equals the market price (fair value) of the underlying stock on the date of grant, no compensation expense is recorded.

The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based compensation for the years ended December 31, as follows which may not be representative of the impact in future years:

	2005			2004			2003

Net loss attributable to common shareholders, as reported	$	(99,382,000	)	$	(83,292,000	)	$	(59,899,000	)
Add: Pro forma compensation expense	415,000			1,330,000			1,381,000
Less: Option compensation expense, as reported	(38,000		)	(45,000		)	(48,000		)
Pro forma net loss attributable to common shareholders	$	(99,759,000	)	$	(84,577,000	)	$	(61,232,000	)

Basic and diluted net loss per share, as reported	$	(5.08	)	$	(4.30	)	$	(3.15	)
Pro forma compensation expense	(0.02		)	(0.07		)	(0.07		)
Pro forma basic and diluted net loss per share	$	(5.10	)	$	(4.37	)	$	(3.22	)

The Company did not grant any stock options in 2005. The fair value for each option grant was estimated at the date of grant using the Black Scholes option pricing model with the following assumptions for the various grants made during 2005, 2004 and 2003:

	2005		2004	2003
Risk-free interest rate	—		3.00%	2.93% - 3.19%
Dividend yield	0	%	0%	0%
Expected volatility	—		90%	59% - 92%
Expected lives	—		5	5

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

Net loss per common share

The following table sets forth the computation of basic and diluted earnings per share:

	Years Ended December 31,
	2005			2004			2003

Net loss	$	(99,382,000	)	$	(83,292,000	)	$	(46,948,000	)

Cumulative exchangeable preferred stock dividends	—			—			12,774,000
Accretion of offering costs on cumulative exchangeable preferred stock	—			—			177,000

Net loss attributable to common shareholders	$	(99,382,000	)	$	(83,292,000	)	$	(59,899,000	)

Weighted average common shares outstanding for basic net loss per share	19,559,000			19,366,000			18,991,000

Basic and diluted net loss per share	$	(5.08	)	$	(4.30	)	$	(3.15	)

Stock options totaling 45,565 for the year ended December 31, 2003, were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

Recent Accounting Pronouncements

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

In December 2004, FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, or Statement 123(R). Statement 123(R) addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value expense of stock options or other equity based compensation issued to employees in the statement of operations. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting in Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, or APB 25. The revised Statement requires entities to disclose information about the nature of the share-based payment transactions and the effects of those transactions on the financial position, results of operations or cash flows.

Statement 123(R) is effective for interim and annual reporting periods beginning on or after January 1, 2006. All public companies must use either the modified prospective or modified retrospective transition method. Statement 123(R) permits public companies to adopt its requirements using one of the two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all shared based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company plans to adopt Statement 123(R) using the modified-prospective approach.

As permitted by Statement 123, through December 31, 2005, the Company accounted for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have an impact on its results of operations, although it will have no impact on its overall financial position or cash flows. The impact of the adoption of Statement 123(R) will depend on the levels of share-based payments granted in the future and the rate of cancellation of unvested grants. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net loss and loss per share in Note 2. The Company currently believes that stock-based compensation expenses for the calendar year ended December 31, 2006 related to share-based payments granted prior to January 1, 2006 and unvested as of that date will range from $120,000 to $140,000.

Note 3 – Acquisitions and Dispositions

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

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

On March 8, 2005, the Company entered into a strategic arrangement with Malara Broadcast Group, under which the Company provides advertising sales, promotion and administrative services, and selected programming to WPTA-TV and KDLH-TV in return for certain fees that will be paid by Malara Broadcast Group to the Company. The fees payable to the Company will be paid after current debt service as well as certain other expenses Malara Broadcast Group incurs directly are satisfied. During the year ended December 31, 2005, Malara Broadcast Group paid the Company approximately $2,639,000 under the strategic arrangements between the companies. As of December 31, 2005, the total amount due to the Company from Malara Broadcast Group was approximately $14,514,000.

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV with the proceeds of the Malara Broadcast Group Senior Credit Facility (see Note 10, Debt).

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

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

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

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

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

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

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

WISE

On March 8, 2005, the Company acquired the stock of WISE-TV from New Vision Group, LLC for $43.5 million in cash plus approximately $2,900,000 of transactions costs. The acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price was allocated to liabilities acquired based on their estimated fair value on the acquisition date.

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

	Value at
	March 8, 2005
Purchase Price	$	46,443,000
Net Liabilities Assumed	1,093,000
FCC License (indefinite lived)	(5,248,000		)
Network Affiliation (estimated useful life, 25 years)	(14,088,000		)
Goodwill (indefinite lived)	$	28,200,000

KDLH

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

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

	Value at
	March 8, 2005
Purchase Price	$	9,864,000
Net Assets Acquired	(4,647,000		)
FCC License (indefinite lived)	(1,459,000		)
Network Affiliation (estimated useful life, 25 years)	(612,000		)
Goodwill (indefinite lived)	$	3,146,000

The following pro forma information from continuing operations for the years ended December 31, 2005 and 2004 have been presented as if the Company’s acquisition of WISE-TV and Malara Broadcast Group’s acquisition of KDLH-TV had occurred on January 1, of each year:

	Years Ended December 31,
	2005		2004
	Pro Forma		Pro Forma
Net Revenues	$	88,011,000	$	93,488,000
Operating Expenses	82,143,000		91,851,000
Income from Operations	5,868,000		1,637,000
Other Expenses	72,621,000		74,170,000
Loss before taxes	66,753,000		72,533,000
Benefit for income taxes	697,000		11,714,000
Net loss attributable to common shareholders	$	66,056,000	$	60,819,000

Basic and diluted net loss per share	$	3.38	$	3.14

Weighted average common shares outstanding	19,559,000		19,366,000

The pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in the future periods or results that would have been achieved had the Company’s acquisition of WISE-TV and Malara Broadcast Group’s acquisition of KDLH-TV occurred during the specified periods.

Note 4 – Discontinued Operations

In accordance with the provisions of Statement No. 144, the operating results of KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan are reported as discontinued operations in the accompanying consolidated balance sheets and statements of operations. The respective assets and liabilities being disposed of have been classified as “held for sale” on the accompanying balance sheets presented and their operations have been recorded as discontinued operations. Discontinued operations have not been segregated in the consolidated statement of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and statements of operations.

Agreements to sell KBWB and WDWB

On September 8, 2005, the Company entered into the KBWB Purchase and Sale Agreement to sell substantially all of the assets of KBWB-TV, the WB affiliate serving the San Francisco, California television market, to the KBWB Buyer. In addition, on September 8, 2005, the Company entered into the WDWB Purchase and Sale Agreement and together with the KBWB Purchase and Sale Agreement, the “Purchase and Sale Agreements” to sell substantially all of the assets of WDWB-TV, the WB affiliate serving the Detroit Michigan television market, to the WDWB Buyer. The Purchase and Sale Agreements contain covenants by the Company not to compete in the San Francisco, California and Detroit, Michigan markets for a period of five years. The aggregate consideration to be received by the Company for the sale of KBWB-TV was $72,500,000, before closing adjustments, which was payable $71,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The aggregate consideration to be received by the Company for the sale of WDWB-TV was $87,500,000, before closing adjustments, which was payable $86,250,000 in cash and $1,250,000 in equity in AM Media Holdings, LLC. The consideration for each covenant not to compete in the San Francisco and Detroit markets was $10 million, respectively. As of December 31, 2005 the aggregate assets held for sale totaled $116,183,000 and the aggregate liabilities held for sale totaled $36,931,000. At December 31, 2004, the aggregate assets held for sale totaled $158,143,000 and the aggregate liabilities held for sale totaled $46,057,000.

Cash related to discontinued operations, which the Company will retain the rights to, is included in cash and cash equivalents in the accompanying consolidated balance sheets for all periods presented. Cash and cash equivalents totaled $520,000 as of December 31, 2005 and $649,000 as of December 31, 2004 is included in the Company’s consolidated balance sheets. Accounts receivable related to discontinued operations, which the Company will retain the rights to and collect, is included in accounts receivable, net of allowance for doubtful accounts, in the accompanying consolidated balance sheets for all periods presented. Such amounts totaled $5,464,000 (net of allowance of $222,000) as of December 31, 2005 and $6,091,000 (net of allowance of $415,000) as of December 31, 2004 and are included in the Company’s consolidated balance sheets. Net loss from discontinued operations was $34,051,000, $24,003,000 and $12,693,000 for the years ended December 31, 2005, 2004 and 2003 respectively. Net revenues from discontinued operations were $31,457,000, $33,266,000 and $35,211,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Net loss from discontinued operations includes non-cash impairment write downs related to film contract rights, affiliation agreements and other intangible assets totaling $35,396,000, $19,291,000 and $2,950,000, in 2005, 2004 and 2003, respectively.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The KBWB Buyer has advised the Company that as a result thereof, the KBWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between the Company and the KBWB Buyer about the transaction, the Company is actively engaging in dialogue with other potential buyers because the Company does not presently have an agreement in principle with the KBWB Buyer with respect to KBWB-TV and anticipates that it will complete a sale of KBWB-TV within the next twelve months. On February 14, 2006, the Company entered into the KBWB Amendment to the KBWB Purchase and Sale Agreement. Pursuant to the KBWB Amendment (i) Section 6.2 of the KBWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the KBWB Buyer and the Company each have the right to terminate the KBWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

On January 24, 2006, the WB Network announced that it will no longer provide programming to current WB affiliates effective in September 2006. The WDWB Buyer has advised the Company that as a result of the WB Network announcement, the WDWB Buyer will not be able to proceed with the transaction as contemplated. While there may be further discussions between the Company and the WDWB Buyer about the transaction, the Company is actively engaging in dialogue with other potential buyers because the Company does not presently have an agreement in principle with the WDWB Buyer with respect to WDWB-TV TV and anticipates that it will complete a sale of WDWB-TV within the next twelve months. On February 14, 2006, the Company entered into the WDWB Amendment to the WDWB Purchase and Sale Agreement. Pursuant to the WDWB Amendment (i) Section 6.2 of the WDWB Purchase and Sale Agreement, a no shop provision, was deleted in its entirety and (ii) the WDWB Buyer and the Company each have the right to terminate the WDWB Purchase and Sale Agreement, at any time, by providing written notice to the other party with no liability or obligation to such other party.

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

	Balance Sheet Data
	December 31,		December 31,
	2005		2004
Film contract rights	$	6,967,000	$	12,851,000
Property and equipment, net	7,883,000		8,510,000
Intangible and other assets	101,333,000		136,782,000
Total assets held for sale	$	116,183,000	$	158,143,000

Film contract rights payable	$	32,292,000	$	37,118,000
Accrued and other liabilities	4,639,000		8,939,000
Total liabilities held for sale	$	36,931,000	$	46,057,000

Note 5 – Restructuring and Acquisition Charges

Restructuring Charges

During 2004, the Company recorded a $2,027,000 restructuring charge relating to employee separations at both its corporate office and its Buffalo, New York television station. Of this total, approximately $1,406,000 related to severance and other benefits, associated with the departure of Stuart J. Beck (see Note 17, Related Parties) and administrative support staff at the corporate office which are being paid over an eighteen month period from date of separation, September 21, 2004. The remaining $621,000 includes severance and other benefits resulting from a reduction in the workforce at the Buffalo, New York television station. As of December 31, 2005, the Company completed the separation payments related to the Buffalo, New York restructuring charges, and reduced its accrual by approximately $10,000 to adjust for payments of benefits and amounts originally accrued.

During the year ended December 31, 2005, the Company recorded restructuring charges totaling $447,000 related to employee separations, which included severance, other benefits and stay-bonuses awarded to transitional employees at its Duluth, Minnesota and Fort Wayne, Indiana television stations. The Company anticipates minimal restructuring charges in future periods relating to stay-bonuses awarded to transitional employees of both its Duluth, Minnesota and Fort Wayne, Indiana television stations upon separation.

At December 31, 2005, the accruals for restructuring activities were included in “other accrued liabilities” on the consolidated balance sheets and the related expense for the charge at the television stations are included in “selling, general and administrative expenses” and the related expense for the corporate charges are included in “corporate separation agreement expenses” on the consolidated statement of operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

Acquisition Charges

During the year ended December 31, 2005, the Company accrued $627,000 related to employee separations, which included severance and other benefits as part of the Company’s purchase accounting. These accrued costs were a result of employees not retained by the Company subsequent to its acquisition of its Fort Wayne, Indiana television station, which included operational through management employees.

At December 31, 2005, the accruals for acquisition activities of the television station were included in “other accrued liabilities” on the consolidated Balance Sheets. These charges were recognized in accordance with the provisions of Emerging Issues Task Force Issue No. 95-3 Recognition of Liabilities in Connection with a Purchase Business Combination.

The following is a reconciliation of the aggregate liability recorded for restructuring and acquisition charges as of December 31, 2005:

	Reconciliation of Aggregate Liability Recorded for Restructuring and Acquisition Charges
	Year Ended December 31, 2005
	December 31, 2004		Provision		Payments		December 31, 2005

Television station	$	250,000	$	1,064,000	$	1,233,000	$	81,000
Corporate	1,214,000		—		1,022,000		192,000

Total	$	1,464,000	$	1,064,000	$	2,255,000	$	273,000

Note 6 – Property and Equipment

The major classifications of property and equipment are as follows:

	December 31,
	2005		2004
Land	$	1,576,000	$	1,556,000
Buildings and improvements	14,443,000		14,740,000
Furniture and fixtures	5,406,000		5,580,000
Technical equipment and other	50,573,000		45,731,000
	71,998,000		67,607,000

Less: Accumulated depreciation and amortization	30,307,000		30,377,000

Net property and equipment	$	41,691,000	$	37,230,000

Note 7 – Other Accrued Liabilities

Other accrued liabilities are summarized below:

	December 31,
	2005		2004
Compensation and benefits	$	3,459,000	$	2,917,000
Severance and other costs related to the sale of KNTV	176,000		309,000
Professional fees	1,720,000		896,000
Severance and restructuring	273,000		1,464,000
Other	1,560,000		691,000

Total	$	7,188,000	$	6,277,000

Note 8 – Other Current Liabilities

Other current liabilities are summarized below:

	December 31,
	2005		2004
Barter payable	$	639,000	$	467,000
Performance award payable	3,286,000		—
Other	2,101,000		667,000

Total	$	6,026,000	$	1,134,000

Note 9 – Other Current Assets

Other current assets are summarized below:

	December 31,
	2005		2004
Barter and other receivables	$	4,878,000	$	1,999,000
Other	1,483,000		1,178,000

Total	$	6,361,000	$	3,177,000

Note 10 – Debt

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

	December 31,
	2005		2004

Malara Broadcast Group Senior Credit Facility	$	25,844,000	$	—

The carrying amounts and fair values of the Company’s long-term debt are as follows:

	December 31, 2005					December 31, 2004
	Carrying Amount			Fair Value		Carrying Amount		Fair Value

Malara Broadcast Group Senior Credit Facility, less current portion	$		27,375,000	$	—	$	—	$	—
9 3/4% Senior Secured Notes, due 2010, net of discount of $3,504,002 at December 31, 2005 and $4,208,702 at December 31, 2004	401,496,000			372,600,000		400,791,000		390,825,000

	$	428,871,000		$	372,600,000	$	400,791,000	$	390,825,000

The fair value of the Company’s Senior Secured Notes at December 31, 2005 and 2004 is estimated based on quoted market prices.

Senior Secured Notes

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

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

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

At December 31, 2005, the Company was in compliance with all covenants under its Notes.

Malara Broadcast Group’s Senior Credit Facility

Malara Broadcast Group financed its acquisition of WPTA-TV and KDLH-TV in March 2005 with the proceeds of the Malara Broadcast Group Senior Credit Facility, consisting of two terms loans totaling $48.5 million and a revolving loan of $5 million. The $23.5 million Malara Broadcast Group Tranche A Term Loan which was secured by a letter of credit was repaid on February 10, 2006. To secure the reimbursement obligations in the event of a draw on the letter of credit, pursuant to the terms and conditions of an Application and Agreement for Standby Letter of Credit, the Company had pledged $25 million of U.S. Government Securities. To the extent that principal payments were made on the Tranche A Term Loan, the letter of credit was to be proportionately reduced and the Company shall be permitted to proportionately reduce the amount of the pledged U.S. Government Securities. The $25 million Malara Broadcast Group Term Loan B and the $5 million revolving loan are secured by the assets of WPTA-TV and KDLH-TV, and guaranteed on an unsecured basis by the Company pursuant to a guaranty agreement (the “Granite Guaranty”).

Malara Broadcast Group is required to make monthly principal payments on the Tranche A Term Loan and the Revolving Loan equal to the product of (i) the Repayment Percentage (which is 25% unless there is an Event of Default or the Consolidated Loan to Stick Value is less than 70%, in which case the Repayment Percentage is 100%) and (ii) the Consolidated Excess Free Cash Flow for the month preceding the month in which such installment is due, as such terms are defined in the Malara Broadcast Group Senior Credit Facility. All such payments shall be applied first to repay the outstanding Revolving Loan to the full extent thereof (without a corresponding reduction in the Revolving Loan Commitment Amount) and second to repay the outstanding Tranche A Term Loan to the full extent thereof; provided that, if the Repayment Percentage for such monthly installment is 100%, the excess 75% of such monthly installment shall be applied first to repay the outstanding Revolving Loan to the full extent thereof and second to repay the outstanding Tranche B Term Loan to the full extent thereof. For the year ended December 31, 2005, the total principal payments made on the Revolving Loan approximated $1,021,000.

At December 31, 2005, Malara Broadcast Group was in compliance with all covenants under the Malara Broadcast Group Senior Credit Facility.

Under a Reimbursement Agreement dated as of March 8, 2005 (the “Reimbursement Agreement”) among the Company, Malara Broadcast Group and certain of Malara Broadcast Group’s subsidiaries (together with Malara, the “Malara Borrowers”), the Malara Borrowers agreed to repay the Company any amounts drawn on the letter of credit plus interest at a rate of 8% per annum. The Company reduced to $16.6 million the amount due from the Malara Borrowers to the Company under the Reimbursement Agreement.

Senior Subordinated Notes

On December 22, 2003, the Company redeemed in full $100,717,000 aggregate principal amount of its 10-3/8% Senior Subordinate Notes due May 15, 2005 and $34,660,000 aggregate principal amount of its 9-3/8% Senior Subordinate Notes due December 1, 2005 at par, plus accrued interest and repurchased all of the outstanding 8-7/8% Senior Subordinated Notes due May 15, 2008 at par, plus accrued interest. In connection with these transactions, the Company recognized a loss on the extinguishment of debt of $3,215,000 related to the write-off of unamortized deferred financing fees and 30-day holding period interest on the 9-3/8% Notes and 10-3/8% Notes from December 22, 2003 to January 21, 2004, the date of redemption, at December 31, 2003.

The scheduled principal maturities on all debt for the five years subsequent to December 31, 2005, are as follows:

2006	$	25,844,000
2007	3,413,000
2008	4,982,000
2009	5,323,000
2010	418,657,000
	$	458,219,000

Note 11 – Commitments

Future minimum lease payments under long-term operating leases as of December 31, 2005 are as follows:

2006	$	591,000
2007	516,000
2008	509,000
2009	477,000
2010	463,000
2011 and thereafter	293,000
	$	2,849,000

Rent expense, including escalation charges, was approximately $585,000, $546,000 and $586,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Future payments under film contract rights agreements as of December 31, 2005 are as follows:

2006	$	5,159,000
2007	4,408,000
2008	4,401,000
2009	3,912,000
2010	2,371,000
2011 and thereafter	808,000
	$	21,059,000

Note 12 – Condensed Consolidating Financial Information

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

BALANCE SHEET

December 31, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Assets

Current assets:
Cash and cash equivalents	$	6,803,511		$	1,825,533		$	—		$	8,629,044
Accounts receivable, net	19,373,183			3,015,363			—			22,388,546
Other current assets	8,359,472			837,466			—			9,196,938
Restricted cash equivalents	24,997,500			—			—			24,997,500
Assets held for sale	116,183,354			—			—			116,183,354
Due from consolidated entity	14,773,036			10,864			(14,783,900		)	—

Total current assets	190,490,056			5,689,226			(14,783,900		)	181,395,382

Property and equipment, net	32,348,927			9,342,340			—			41,691,267
Other non current assets	14,903,268			1,312,134			(3,646,668		)	12,568,734
Intangibles, net	153,171,696			44,740,731			(27,731,100		)	170,181,327

Total assets	$	390,913,947		$	61,084,431		$	(46,161,668	)	$	405,836,710

Liabilities and stockholders’ deficit

Current liabilities:
Accounts payable and other accrued liabilities	$	11,222,811		$	608,036		$	—		$	11,830,847
Current portion of long-term debt	—			25,844,000			—			25,844,000
Other current liabilities	8,573,826			1,110,674			—			9,684,500
Liabilities held for sale	36,930,893			—			—			36,930,893
Due to consolidated entity	10,864			14,773,036			(14,783,900		)	—

Total current liabilities	56,738,394			42,335,746			(14,783,900		)	84,290,240

Long-term debt, less current portion	401,495,998			27,375,458			—			428,871,456
Other non current liabilities	28,483,877			3,921,019			(3,646,668		)	28,758,228
Redeemable preferred stock	199,191,138			—			—			199,191,138
Accrued dividends on redeemable preferred stock	95,804,417			—			—			95,804,417

Stockholders’ deficit:
Common stock	195,783			—			—			195,783
Additional paid-in capital	393,701			—			—			393,701
Accumulated deficit	(390,513,206		)	(12,547,792		)	(27,731,100		)	(430,792,098		)
Less: Unearned compensation	(480		)	—			—			(480		)
Treasury stock, at cost	(875,675		)	—			—			(875,675		)
Total stockholders’ deficit	(390,799,877		)	(12,547,792		)	(27,731,100		)	(431,078,769		)
Total liabilities and stockholders’ deficit	$	390,913,947		$	61,084,431		$	(46,161,668	)	$	405,836,710

STATEMENT OF OPERATIONS

For the year ended December 31, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Net revenues	$	86,376,259	(1)	$	12,590,124		$	(12,806,840	)	$	86,159,543

Station operating expenses:
Direct operating expenses (exclusive of depreciation and amortization expenses shown separately below)	33,499,698			5,474,585		(2)	(4,091,242		)	34,883,041
Selling, general and administrative expenses (exclusive of depreciation and amortization expenses shown separately below)	24,269,965			9,857,435		(3)	(8,715,598		)	25,411,802
Corporate expense (exclusive of depreciation expense shown separately below)	10,550,430			—						10,550,430
Depreciation and amortization	6,965,520			989,654						7,955,174
Performance award expense	1,279,188			—						1,279,188
Non-cash compensation expense	411,862			—						411,862

Operating income (loss)	9,399,596			(3,731,550		)				5,668,046

Other expenses (income):
Interest expense	39,498,142			4,236,213						43,734,355
Interest income	(1,710,937		)	—						(1,710,937		)
Non-cash interest expense	3,728,917			236,312						3,965,229
Non-cash preferred stock dividend	25,547,844			—						25,547,844
Other	(4,184,270		)	4,343,717						159,447

Loss from continuing operations before income taxes	(53,480,100		)	(12,547,792		)				(66,027,892		)
Benefit for income taxes	(696,704		)	—						(696,704		)

Loss from continuing operations	(52,783,396		)	(12,547,792		)				(65,331,188		)
Discontinued operations:
Loss from discontinued operations, net of taxes	(34,050,626		)	—						(34,050,626		)

Net loss	$	(86,834,022	)	$	(12,547,792	)				$	(99,381,814	)

Basic and diluted net loss per share from continuing operations	$	(2.70	)	N/A						$	(3.34	)
Basic and diluted net loss per share from discontinued operations	$	(1.74	)	N/A						$	(1.74	)
Basic and diluted net loss per share	$	(4.44	)	N/A						$	(5.08	)

Weighted average common shares outstanding	19,558,756			N/A						19,558,756

(1) Amount includes approximately $12,807,000 of fees charged by the Company to Malara Broadcast Group for services performed under local services agreements.

(2) Amount includes approximately $4,091,000 of programming expenses charged by the Company to Malara Broadcast Group.

(3) Amount includes approximately $2,363,000 and $6,353,000 for advertising representation commissions and shared service fees, respectively, charged by the Company to Malara Broadcast Group.

STATEMENT OF CASH FLOWS

For the year ended December 31, 2005

	Granite Broadcasting Corporation			Malara Broadcast Group			Eliminations			Consolidated Company

Cash flows (used in) provided by operating activities	$	(26,718,375	)	$	3,866,837		$	(31,716	)	$	(22,883,254	)

Cash flows from investing activities:
Sales (purchase) of marketable securities and other investments	5,598,815			—			—			5,598,815
Proceeds from sale of assets	45,417,485			—			(45,417,485		)	—
Payment for acquisition of assets	(46,442,584		)	(55,312,983		)	45,449,201			(56,306,366		)
Proceeds (payments) from option agreements	(3,646,668		)	3,646,668			—			—
Purchase of U.S. Government Securities	(24,997,500		)	—			—			(24,997,500		)
Capital expenditures	(2,401,971		)	(1,376,203		)	—			(3,778,174		)
Net cash used in investing activities	(26,472,423		)	(53,042,518		)	31,716			(79,483,225		)

Cash flows from financing activities:
Proceeds from senior credit facility	—			53,500,000						53,500,000
Payment of senior credit facility	—			(1,020,703		)				(1,020,703		)
Payment of deferred financing fees	(864,401		)	(1,478,083		)				(2,342,484		)
Net cash (used in) provided by financing activities	(864,401		)	51,001,214						50,136,813

Net (decrease) increase in cash and cash equivalents	(54,055,199		)	1,825,533						(52,229,666		)
Cash and cash equivalents, beginning of period	60,858,710			—						60,858,710
Cash and cash equivalents, end of period	$	6,803,511		$	1,825,533					$	8,629,044

Supplemental information:
Cash paid for interest	$	39,487,500		$	3,483,378					$	42,970,878
Cash paid for income taxes	177,266			—						177,266
Non-cash capital expenditures	309,110			—						309,110

Other Historical Consolidation Information

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

For the years ended December 31, 2004 and 2003, consolidation of variable interest entity in accordance with Interpretation 46 was not applicable for the Company’s Statement of Operations and Statement of Cash Flows.

Note 13 – Redeemable Preferred Stock

Series A Preferred Stock

The Company authorized 100,000 shares of its Series A Convertible Preferred Stock (“Series A Stock”), par value $.01 per share, which were issued at an aggregate price of $1,210,000. All outstanding shares of the Series A Stock were converted into shares of the Company’s Common Stock (Nonvoting), par value $.01 per share (the “Common Stock (Nonvoting)”) in August 1995. Prior to conversion, dividends accrued on the Series A Stock at an annual rate of $.40 per share, which accumulated, without interest, if unpaid. Accrued but unpaid dividends on the Series A Stock totaled $263,000 at December 31, 2005 and 2004 and are recorded in other non-current liabilities on the Company’s balance sheet. Accrued dividends are due and payable on the date on which such dividends may be paid under the Company’s debt instruments.

12 3/4 % Cumulative Exchangeable Preferred Stock

In January 1997, the Company authorized the issuance of 400,000 shares of its 12 3/4 % Cumulative Exchangeable Preferred Stock (the “12 3/4 % Cumulative Exchangeable Preferred Stock”), par value $.01 per share. In connection with the Company’s acquisition of WDWB-TV, 150,000 shares of the 12 3/4 % Cumulative Exchangeable Preferred Stock were issued in January 1997 at a price of $1,000 per share.

Holders of the 12 3/4 % Cumulative Exchangeable Preferred Stock are entitled to receive dividends at an annual rate of 12 3/4 % per share payable semi-annually on April 1 and October 1 of each year. The Company paid dividends on and prior to April 1, 2002 in additional shares of 12 3/4 % Cumulative Exchangeable Preferred Stock. On and after October 1, 2002, the Company is required to pay such dividends in cash. However, the payment of cash dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock was restricted by the terms of the indentures governing the Company’s senior subordinated notes and was prohibited under the terms of the then outstanding senior credit agreement. Since three or more semi-annual dividend payments have not been paid, the holders of the Preferred Stock have the right to elect the lesser of two directors or that number of directors constituting 25% of the members of the Board of Directors. Effective October 24, 2005, the holders of the majority of the Preferred Stock exercised their right to elect two directors to the Board of Directors of the Company. The Company is restricted by the terms of the Indenture, which governs the Company’s senior secured notes, from paying cash dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock. The Company does not anticipate paying cash dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock in the foreseeable future. Dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock are cumulative and accrue without interest, if unpaid. Accrued but unpaid dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock totaled $95,804,000 as of December 31, 2005 are recorded in other non-current liabilities on the Company’s consolidated balance sheet.

During the three months ended September 30, 2003, the Company adopted Statement 150 and the 12 3/4 % Cumulative Exchangeable Preferred Stock was reclassified on the Company’s consolidated balance sheet as a long-term liability and the accrual of dividends for the six months ended December 31, 2003 was recorded as a charge to expense on the consolidated statement of operations. Prior to the adoption of Statement 150, dividends on the 12 3/4 % Cumulative Exchangeable Preferred Stock was treated as a reduction of shareholders’ equity. The impact of adopting Statement 150 resulted in a reduction of income before income taxes by $25,548,000 for the years ended December 31, 2005 and 2004, respectively and $12,774,000 for the year ended December 31, 2003.

The 12 3/4 % Cumulative Exchangeable Preferred Stock is entitled to a preference of $1,000 per share initially, plus accumulated and unpaid dividends in the event of liquidation or winding up of the Company ($294,996,000 liquidation value at December 31, 2005). The Company is required, subject to certain conditions, to redeem all of the 12 3/4 % Cumulative Exchangeable Preferred Stock outstanding on April 1, 2009, at a redemption price equal to 100% of the then effective liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of redemption. Based on quoted market prices, the fair value of the 12 3/4 % Cumulative Exchangeable Preferred Stock at December 31, 2005 is $38,071,250.

Subject to certain conditions, each share of the 12 3/4 % Cumulative Exchangeable Preferred Stock is exchangeable, in whole or in part, at the option of the Company, for the Company’s 12 3/4 % Exchange Debentures (the “12 3/4 % Exchange Debentures”) on any scheduled dividend payment date at the rate of $1,000 principal amount of 12 3/4 % Exchange Debentures for each share of 12 3/4 % Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange.

Note 14 – Stockholders’ Deficit

Stock option plans

In April 1990 the Company adopted a stock option plan (the “Stock Option Plan”) for officers and certain key employees. The Stock Option Plan terminated on April 1, 2000. At December 31, 2005 and 2004, options granted under the Stock Option Plan were outstanding for the purchase of 3,304,200 and 4,094,700 shares of Common Stock (Nonvoting), respectively.

On April 27, 2000, the Company adopted a new stock option plan (the “2000 Stock Option Plan”) for officers and certain key employees. The number of shares of Common Stock (Nonvoting) subject to options available for grant is 4,000,000. Options may be granted under the 2000 Stock Option Plan at an exercise price (for tax-qualified incentive stock options) of not less than 100% of the fair market value of the Common Stock (Nonvoting) on the date the option is granted, or 110% of such fair market value for option recipients who hold 10% or more of the Company’s voting stock. The exercise price for non-qualified stock options may be less than, equal to or greater than the fair market value of the Common Stock (Nonvoting) on the date the option is granted. At December 31, 2005 and 2004, options granted under the 2000 Stock Option Plan were outstanding for the purchase of 1,486,500 and 1,496,500 shares of Common Stock (Nonvoting), respectively.

On March 1, 1994, the Company adopted a Director Stock Option Plan (the “Director Option Plan”) providing for the grant, from time to time, of nonqualified stock options to non-employee directors of the Company to purchase shares of Common Stock (Nonvoting). On April 23, 2002, the Director Option Plan was amended to increase the shares of Common Stock (Nonvoting) subject to options available for grant to 1,500,000. As of December 31, 2005 and 2004, options granted under the Director Option Plan were outstanding for the purchase of 660,250 and 689,650 shares of Common Stock (Nonvoting), respectively. The options granted under the Director Option Plan serve as compensation for attendance at regularly scheduled meetings and for service on certain committees of the Board of Directors.

The Company’s stock option information is as follows:

	2005					2004					2003
	Options			Weighted- Average Exercise price		Options			Weighted- Average Exercise price		Options			Weighted- Average Exercise price

Outstanding at beginning of year	6,280,850			$	6.34	6,791,135			$	6.21	6,721,435			$	6.33
Granted	0			0		20,000			1.76		160,000			2.10
Exercised	0			0		0			0		(17,500		)	1.50
Forfeited	(829,900		)	5.77		(530,285		)	4.51		(72,800		)	9.29
Outstanding at end of year	5,450,950			6.42		6,280,850			6.34		6,791,135			6.21
Exercisable at end of year	4,248,450			5.58		4,864,900			5.77		4,637,535			5.96
Weighted-average fair value of options granted during the year	$	0				$	1.38				$	1.36

	Options Outstanding				Options Exercisable
Range of Exercise Prices	at 12/31/05	Weighted-Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Outstanding at 12/31/05	Weighted- Average Exercise Price

$ 1.47 - $2.70	1,431,500	5.06 years	$	2.10	1,339,000	$	2.10
$ 3.00 - $5.50	5,000	4.33 years	5.50		5,000	5.50
$ 6.13 - $6.88	1,514,000	2.51 years	6.45		1,514,000	6.45
$ 7.00 - $9.75	1,303,450	2.21 years	7.76		1,303,450	7.76
$ 10.00 - $12.44	1,197,000	2.17 years	10.11		87,000	11.47

Management Stock Plan

In April 1993, the Company adopted a Management Stock Plan providing for the grant from time to time of awards denominated in shares of Common Stock (Nonvoting) (the “Bonus Shares”) to salaried executive employees of the Company. On October 19, 2004 the Company increased the reserve of shares from 2,000,000 to 2,500,000. Shares generally vest over a five-year period. As of December 31, 2005, the Company has allocated a total of 2,035,425 Bonus Shares pursuant to the Management Stock Plan, 1,958,925 of which had vested through December 31, 2005. For the years ended December 31, 2005 and 2004, 161,500 and 255,500 shares, respectively, were granted pursuant to the Management Stock Plan. The weighted-average grant-date fair value of those shares is $0.24 and $0.79, respectively.

Non-Employee Directors’ Stock Plan

In April 1997, the Company adopted a Non-Employee Directors’ Stock Plan (the “Director Stock Plan”), providing an annual grant of shares of the Company’s Common Stock (Nonvoting) to each eligible non-employee director. On December 2, 2002, the Company increased the reserve of shares of Common Stock (Nonvoting) for grant under the Director Stock Plan from 400,000 shares to 600,000 shares, and increased the compensation to be received by each eligible non-employee director on January 1^st of each calendar year beginning January 1, 2003 to a number of shares of Common Stock (Nonvoting) equal to $50,000 divided by the fair market value per share on the date of grant; provided, that, any Directors Stock Plan Participant may elect prior to the grant date to be paid up to $30,000 of such grant in cash in lieu of shares having an aggregate fair market value equal to the amount of such cash payment. Shares granted vest immediately. On December 31, 2004, the Company’s Board of Directors suspended Director Stock Plan until such time the Board of Directors determines otherwise. Effective beginning January 1, 2005, each eligible non-employee director will receive an annual fee of $45,000 for director services payable semiannually in equal increments in cash. For the years ended December 31, 2004 and 2003, 229,125 and 107,780 shares, respectively, were granted pursuant to the Director Stock Plan. No shares were granted in 2005.

Employee Stock Purchase Plan

On February 28, 1995, the Company adopted the Granite Broadcasting Corporation Employee Stock Purchase Plan (the “Stock Purchase Plan”) for the purpose of enabling its employees to acquire ownership of Common Stock (Nonvoting) at a discount, thereby providing an additional incentive to promote the growth and profitability of the Company. The Stock Purchase Plan enables employees of the Company to purchase up to an aggregate of 1,000,000 shares of Common Stock (Nonvoting) at 85% of the then current market price through application of regularly made payroll deductions.

In March 2001, the Company issued 753,491 stock purchase warrants to its then senior lenders. The warrants were issued at an exercise price of $1.75 and are exercisable at any time prior to March 6, 2006.

The total number of common shares outstanding at December 31, 2005 assuming the exercise of all outstanding stock options and warrants is as follows:

Class A Common Stock		98,000
Common Stock (Nonvoting)		19,480,000
Stock options		5,451,000
Warrants		753,000
		25,782,000

Note 15 – Income Taxes

The Company records income taxes using a liability approach for financial accounting and reporting that results in the recognition and measurement of deferred tax assets based on the likelihood of realization of tax benefits in future years.

The (benefit) provision for income taxes for the years ended December 31 consists of the following:

	2005			2004			2003
Current taxes:
Federal	$	—		$	—		$	(16,327,000	)
State	171,000			216,000			216,000
	171,000			216,000			(16,111,000		)
Deferred taxes:
Federal	(865,000		)	(11,927,000		)	(1,303,000		)
State	(3,000		)	(3,000		)	382,000
	(868,000		)	(11,930,000		)	(921,000		)
(Benefit) provision for income taxes	$	(697,000	)	$	(11,714,000	)	$	(17,032,000	)

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax asset and liability as of December 31 are as follows:

	December 31,
	2005			2004
Deferred tax liability:
Depreciation and amortization	$	23,125,000		$	29,318,000
Total deferred tax liability	23,125,000			29,318,000

Deferred tax assets:
Net operating loss carry forward	33,130,000			25,190,000
Other	1,175,000			2,108,000
Valuation allowance	(32,741,000		)	(17,327,000		)
Total deferred tax assets	1,564,000			9,971,000
Net deferred tax liability	$	21,561,000		$	19,347,000

The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the years ended December 31 is as follows:

	2005		2004		2003

U.S. statutory rate	35.0	%	35.0	%	35.0	%
State and local taxes	(0.3	)	(0.2	)	(0.6	)
(Increase) / decrease in valuation allowance	(13.3	)	(12.4	)	—
Accrued dividend on redeemable preferred stock	(13.7	)	(9.4	)	(7.0	)
Other	(6.7	)	(0.7	)	(0.7	)
Effective tax rate	1.0	%	12.3	%	26.7	%

At December 31, 2005, the Company had a net operating loss carry forward for federal tax purposes of approximately $94,657,000 of which approximately $10,837,000 is subject to certain utilization limitations provided by the Internal Revenue Code. If not utilized, $10,837,000 of the net loss carry forwards will expire in 2006 through 2018, and the remaining $83,820,000 will expire in 2023 through 2025.

Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. As a result, the Company recorded a valuation allowance of approximately $32,741,000 and $17,327,000 for the years ended December 31, 2005 and 2004, respectively. The increase in the valuation allowance during 2005 of $15,414,000 primarily relates to the increase in the Company’s net operating loss carry forward.

In connection with the acquisition of WISE-TV, the Company recorded net deferred tax liabilities of $7,834,000 in the purchase accounting for the transaction and reduced its valuation allowance by $4,750,000 as an offset to goodwill.

Note 16 – Defined Contribution Plan

The Company has a trusteed profit sharing and savings plan (the “Plan”) covering substantially all of its employees. Contributions by the Company to the Plan are based on a percentage of the amount of employee contributions to the Plan and are made at the discretion of the Board of Directors. Company contributions, which are funded monthly, amounted to $518,000, $591,000 and $452,000 for the years ended December 31, 2005, 2004 and 2003 respectively.

Note 17 – Related Party

Between 1995 and 1998, the Company loaned W. Don Cornwell, the Company’s Chief Executive Officer, $2,911,000 in four separate transactions. On January 1, 2001, the Company loaned Mr. Cornwell an additional $375,000 to repay a loan, for which the proceeds had been used by Mr. Cornwell to acquire shares of the Company’s common stock in the open market. On February 15, 2001, the Company agreed to consolidate the five loans into one promissory note in the amount of $3,286,000. The promissory note matured on January 25, 2006. Interest at an annual rate of 6.75 % was imputed on the promissory note as additional compensation to the officer.

In 1995, the Company loaned Stuart Beck, the Company’s President, $221,200. On February 15, 2001, the Company agreed to cancel this note and issue a new promissory note in the same amount. As more fully described below, Mr. Beck’s promissory note was repaid in full in 2004.

In February 2003, the Compensation Committee recommended, and the Board of Directors approved, an incentive award of $3,286,065 to each of Mr. Cornwell and Mr. Beck to be paid, subject to vesting terms, only upon the occurrence of the refinancing with a maturity of at least two years, of the senior debt due April 15, 2004. On December 22, 2003, the Company issued $405 million aggregate principal amount of 9 3/4 % Senior Secured Notes, the proceeds of which were used by the Company in part to repay all outstanding borrowings (plus accrued interest) under the Company’s then outstanding senior credit agreement, which satisfied the performance objective of the awards. Mr. Cornwell’s award, which vests in one-third tranches over three years from the refinancing date, was to be used to repay in full his outstanding loan from the Company of $3,286,065 due January 25, 2006. Mr. Cornwell irrevocably elected to defer payment of the first two tranches under his performance award until January 25, 2006 when his loan was due. On March 1, 2005, the Board of Directors approved the acceleration of payment of the third tranche of Mr. Cornwell’s award to January 25, 2006. The Company’s Management Stock Plan, pursuant to which the performance award was granted, permits the compensation Committee, in its sole discretion, to require as a condition to payment of an award, that the award recipient pay to the Company the amount of any taxes that the Company is required to withhold. The Compensation Committee has so elected to require Mr. Cornwell to pay to the Company the applicable withholding taxes with respect to the performance award. Mr. Cornwell has informed the Company that he is presently unable to do so, since the full amount of the performance award must be used to satisfy his outstanding loan from the Company. In light of the forgoing, the Company has neither paid the performance award to Mr. Cornwell nor offset the amount of the award in repayment of the loan, which loan remains due and payable.

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

Under the terms of the separation agreement, the Company and Stuart J. Beck amended the Performance Award and deferral of such payments pursuant to the Separation Agreement. Under the amended terms of the Performance Award, Mr. Beck’s Performance Award fully vested as of the separation date and payment of $221,200 was made on September 30, 2004 to repay his outstanding promissory note to the Company. The remaining vested award of $3,065,000 is payable in cash on December 22, 2006. In addition, the Company modified the terms of Mr. Beck’s outstanding stock option awards to allow his options to continue to vest and have the right to exercise his options until the earlier of (A) the later of January 2, 2007 and 30 days after the last day of Mr. Beck’s continuous service on the Company’s Board of Directors and (B) the fixed date on which each stock option award was initially set to expire.

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

During the year ended December 31, 2004, the Company recorded one-time expenses for the separation benefits and acceleration of the remaining portion of the Performance Award of approximately $1,290,000 and $1,562,000, respectively.

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

Note 18 – Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 2005 and 2004:

	March 31, 2005			June 30, 2005			September 30, 2005			December 31, 2005

Net revenue	$	17,821,000		$	23,057,000		$	20,823,000		$	24,458,000
Net loss	(19,494,000		)	(16,207,000		)	(19,654,000		)	(44,027,000)		(a)

Per common share:
Net loss
Basic	$	(1.00	)	$	(0.83	)	$	(1.00	)	$	(2.25	)
Diluted	(1.00		)	(0.83		)	(1.00		)	(2.25		)

	March 31, 2004			June 30, 2004			September 30, 2004			December 31, 2004

Net revenue	$	17,673,000		$	20,220,000		$	19,437,000		$	23,170,000
Net loss	(17,413,000		)	(15,703,000		)	(20,002,000		)	(30,174,000		)(b)

Per common share:
Net loss
Basic	$	(0.90	)	$	(0.81	)	$	(1.03	)	$	(1.56	)
Diluted	(0.90		)	(0.81		)	(1.03		)	(1.56		)

(a) In accordance with Statement 142, the Company completed its required annual impairment test as of December 31, 2005, and recorded an impairment charge on the carrying value of goodwill of approximately $7,669,000. In addition, the Company wrote down the remaining carrying value of its network affiliations agreements at its KBWB-TV and WDWB-TV television stations by approximately $23,381,000 due to the announcement by the WB Network that effective September 2006, the WB Network will no longer provide programming to current WB affiliates.

(b) In accordance with Statement 142, the Company completed its required annual impairment test as of December 31, 2004, and recorded an impairment charge on the carrying value of goodwill of approximately $15,491,000.

PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth information concerning our executive officers and directors as of March 15, 2006:

Name	Age	Position

W. Don Cornwell (1)	58	Chairman of the Board, Chief Executive Officer and Director
Robert E. Selwyn, Jr.	62	Senior Operating Advisor
Lawrence I. Wills	45	Senior Vice President-Chief Financial Officer
John Deushane	49	Chief Operating Officer
James L. Greenwald(2)	78	Director
Stuart J. Beck(1)	59	Director
Edward Dugger, III	56	Director
Thomas R. Settle(1)(3)(4)	65	Director
Charles J. Hamilton, Jr.(2)(3)(4)	58	Director
M. Fred Brown(2)	59	Director
Jon E. Barfield(3)	54	Director
Veronica Pollard(3)	60	Director
Eugene I. Davis	51	Director
Kirk W. Aubry	44	Director

(1) Member of the Stock Option Committee. The stock option committee is only authorized to grant stock options to employees other than executive officers.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

(4) Member of the Management Stock Plan Committee.

Mr. Cornwell is a co-founder of our company and has been Chairman of our Board of Directors and our Chief Executive Officer since February 1988. Mr. Cornwell served as our President, which office then included the duties of chief executive officer, until September 1991 when he was elected to the newly created office of Chief Executive Officer. Prior to founding Granite, Mr. Cornwell served as a Vice President in the Investment Banking Division of Goldman, Sachs & Co. from May 1976 to July 1988. In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate Finance Department of Goldman, Sachs & Co. from January 1980 to August 1987. Mr. Cornwell is a director of Avon Products, Inc., Pfizer, Inc. and CVS Corporation. Mr. Cornwell received a Bachelor of Arts degree from Occidental College in 1969 and a Masters degree in Business Administration from Harvard Business School in 1971.

Mr. Stuart Beck is a co-founder of our company and has been a member of our Board of Directors since February 1988. Mr. Beck served as our President and Secretary from September 1991 to September 2004, when he resigned as an officer of the Company to accept an appointment as Ambassador/Permanent Representative of the Republic of Palau to the United Nations. Prior to founding Granite, Mr. Beck was an attorney in private practice of law in New York, New York and Washington, DC. Mr. Beck received a Bachelor of Arts degree from Harvard College in 1968 and a Juris Doctor degree from Yale Law School in 1971.

Mr. Selwyn has been our Senior Operating Advisor since January 1, 2003 and was member of our Board of Directors from May 11, 1998 through March 27, 2006. In addition, Mr. Selwyn served as our Chief Operating Officer from 1996 to 2002. Prior to joining Granite, Mr. Selwyn was employed by New World Communications, Inc. from May 1993 to June 1996 serving as Chairman and Chief Executive Officer of the New World Television Station Group. Mr. Selwyn received a Bachelor of Science degree from the University of Tennessee in 1968. From 1990 until 1993, Mr. Selwyn was the President of Broadcasting for SCI Television, Inc.

Mr. Wills has been our Senior Vice President–Chief Financial Officer since September 2004. In addition, Mr. Wills served as our Senior Vice President-Chief Administrative Officer from 2001 to September 2004 and Vice President—Finance and Controller from 1990 to 2001. Prior to joining Granite, Mr. Wills was employed by Ernst & Young LLP from 1982 to 1990 in various capacities, the most recent of which was as senior audit manager responsible for managing and supervising audit engagements. Mr. Wills is a Trustee of Iona College and a director of Junior Achievement of New York, Inc. Mr. Wills received a bachelor’s degree in Business Administration from Iona College in 1982.

Mr. Deushane has been our Chief Operating Officer since January 1, 2003. Mr. Deushane served as our Regional Vice President — Midwest from 1998 to 2002. Prior to his position as Regional Vice President – Midwest, Mr. Deushane served as President and General Manager of KSEE-TV during 1997 and President and General Manager of WEEK-TV from 1991 to 1996. Mr. Deushane is a director of the New York State Broadcasters Association. Mr. Deushane graduated magna cum laude from Bradley University with a Bachelor of Science degree in broadcast management and journalism.

Mr. Greenwald has been a member of our Board of Directors since December 1988. Mr. Greenwald was the Chairman and Chief Executive Officer of Katz Communications, Inc. from May 1975 to August 1994 and has been Chairman Emeritus since August 1994. Mr. Greenwald has served as President of the Station Representatives Association and the International Radio and Television Society and Vice President of the Broadcast Pioneers and was a director of Paxson Communications Corp. Mr. Greenwald currently serves on the executive committee of the Library American Broadcasting. Mr. Greenwald received a Bachelor of Arts degree from Columbia University in 1949 and an Honorary Doctorate Degree in Commercial Science from St. Johns University in 1980.

Mr. Dugger has been a member of our Board of Directors since December 1988. Mr. Dugger has been President and Chief Executive Officer of UNC Ventures, Inc., a Boston-based venture capital firm, since January 1978, and its investment management company, UNC Partners, Inc., since June 1990. Mr. Dugger is a former director of the Federal Reserve Bank of Boston. Mr. Dugger received a Bachelor of Arts degree from Harvard College in 1971 and a Masters degree in Public Administration and Urban Planning from Princeton University in 1973.

Mr. Hamilton has been a member of our Board of Directors since July 1992. Mr. Hamilton was a partner in the New York law firm of Battle Fowler LLP from 1983 to 2000. On June 8, 2000 Battle Fowler LLP merged with the law firm Paul, Hastings, Janofsky & Walker LLP, where he is a partner. Mr. Hamilton received a Bachelor of Arts degree from Harvard College in 1969, a Juris Doctor degree from Harvard Law School in 1975 and a Masters degree in City Planning (MCP) from the Massachusetts Institute of Technology in 1975. Mr. Hamilton is a member of the Board of Directors of the Environmental Defense Fund and Phoenix House Foundation, Inc.

Mr. Settle has been a member of our Board of Directors since July 1992. Mr. Settle founded and is currently a director of The Winchester Group, Inc., an investment advisory firm, since 1990. Mr. Settle was the chief investment officer at Bernhard Management Corporation from 1985 to 1989. He was a Managing Director of Furman Selz Capital Management from 1979 until 1985. Mr. Settle received a Bachelor of Arts Degree from Muskingum College in 1963 and a Masters degree in Business Administration from Wharton Graduate School in 1965.

Mr. Brown has been a member of our Board of Directors since April 1999. Mr. Brown founded and has been President of Aerodyne Capital, Inc., a California company specializing in the trading and leasing of commercial jet aircraft and high-bypass jet engines since 1993. Mr. Brown is also a licensed real estate broker providing mortgage and real estate brokerage services through Eagle Financial Services Company. Prior to founding Aerodyne, Mr. Brown was Senior Vice-President and Managing Director of Marketing for Blenhiem Aviation from 1989-1993. In addition, Mr. Brown served as Vice-President at Goldman Sachs & Co. While at Goldman Sachs & Co., Mr. Brown was seconded to Freedom National Bank NA as its Senior Vice-President and Chief Financial Officer. Mr. Brown is a Director of San Francisco Jazz Organization. Mr. Brown received a Bachelor of Arts degree from Middlebury College in 1969. He received a Juris Doctor degree and a Masters degree in Business Administration from the University of California at Berkeley in 1973 and is a member of the California Bar.

Mr. Barfield has been a member of our Board of Directors since April 1999. Mr. Barfield has been Chairman, President and Chief Executive Officer of The Bartech Group, a professional staffing and outsourcing services firm, since 1997. In addition, Mr. Barfield served as Chairman and Chief Executive Officer of the Bartech Group from 1995 to 1997, and as President of The Bartech Group from 1981 to 1995. Prior to joining The Bartech Group, Mr. Barfield practiced corporate and securities law with the Chicago based law firm of Sidley, Austin, Brown and Wood from 1977 to 1981. Mr. Barfield is a director of National City Corporation, BMC Software, Inc., CMS Energy Corporation, Tecumseh Products Company and Blue Cross Blue Shield of Michigan. He is also a Trustee Emeritus of Princeton University and a Trustee of The Henry Ford and of Kettering University. Mr. Barfield received a Bachelor of Arts degree from Princeton University in 1974 and received a Juris Doctor degree from Harvard Law School in 1977.

Ms. Pollard has been a member of our Board of Directors since January 2000. Ms. Pollard is Vice President of External Affairs for Save the Children, a non-profit humanitarian organization. Previously, she was Group Vice President, Corporate Communications, Toyota Motor North America, Inc. until June 2004. She had been Vice President-External Affairs for Toyota Motor North America (formerly Toyota Motor Corporate Services of North America, Inc.) since joining Toyota in 1998. Prior to joining Toyota Motor. Ms. Pollard was at ABC, Inc. for 17 years, including serving as Vice President-Corporate Public Relations from 1994 to 1998. Ms. Pollard is a trustee of the Museum for African Art in New York, a director of The Doe Fund and a member of the Individual Investor Advisory Committee of the New York Stock Exchange. Ms. Pollard attended the University of Wisconsin for two years, received a Bachelor’s degree from Boston University in 1966, and a Master’s degree from Columbia University, Teachers College, in 1968.

Mr. Davis has been a member of our Board of Directors since October 2005. Mr. Davis is Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC, a privately held consulting firm. Since forming PIRINATE in 1997, Mr. Davis has advised, managed, sold, liquidated and served as Chief Executive Officer, Chief Restructuring Officer, Director, Committee Chairman and Chairman of the Board of a number of business. Previously, Mr. Davis served as President, Vice Chairman and Director of Emerson Radio Corporation and CEO and Vice Chairman of Sport Supply Group, Inc. He began his career as an attorney and international negotiator with Exxon Corporation and Standard Oil Company (Indiana) and as a prater in two Texas-based law firms. Mr. Davis holds a bachelor’s degree from Columbia College, a masters in international affairs degree (MIA) in international law and organization from the School of International Affairs of Columbia University, and a Juris Doctorate from Columbia University School of Law.

Mr. Aubry has been a member of our Board of Directors since October 2005. Since 2000, Mr. Aubry served as Executive Vice President and Chief Commercial Operations Officer of Textron Automotive. From 1988 to 2000, Mr. Aubry was President of Trio, a marketing, communications and strategic service provider. Prior to that, Mr. Aubry introduced breakthrough electronic technology to solve distribution, sales and marketing challenges at Buick Motor Division. He plated a key role in launching Prodigy, the nation’s first national online service. Mr. Aubry holds a BA degree from the University of Western Ontario.

Each member of our Board of Directors elected by the holders of our Voting Common Stock holds office until the next annual meeting of our shareholders, unless such director resigns or is removed before then, or until such director’s successor is duly elected and qualified. Each member of our Board of Directors elected by the holders of a majority of the shares of our 12-3/4% Cumulative Exchangeable Preferred Stock (the “Preferred Stock”) holds office until the next annual meeting, unless such director resigns or is removed by the holders of a majority of the shares of our Preferred Stock before then, and until such director’s successor is duly elected and qualified. The right of the holders of a majority of the shares of our the Preferred Stock to elect such members of the Board of Directors continues until such time as all accumulated dividends that are required to be paid in cash and that are in arrears on the Preferred Stock are paid in full in cash. We are restricted from paying cash dividends under the Indenture, which governs our Notes, and do not anticipate paying cash dividends on our Preferred Stock in the foreseeable future. All officers are elected annually and serve at the discretion of the Board of Directors.

Directors are separately reimbursed by us for their travel expenses incurred in attending Board or committee meetings and receive securities under our Director Stock Option Plan and, until December 31, 2004, our Non-Employee Directors Stock Plan.

Board Committees and Membership

Below is a description of each committee of the Board of Directors. The Board of Directors has determined that each member of each committee, excluding the Stock Option Committee, meets the applicable laws and regulations regarding “independence” and that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment.

Audit Committee. The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of our accounting, auditing, and reporting practices. The Audit Committee’s role includes discussing with management our processes to manage business and financial risk, and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible for the appointment, replacement, compensation, and oversight of the independent auditor engaged to prepare and issue audit reports on our financial statements. The Audit Committee relies on the expertise and knowledge of management, the internal auditors, and the independent auditor in carrying out its oversight responsibilities. The specific responsibilities and functions of the Audit Committee are delineated in the Audit Committee Charter, which is available on our corporate web site (www.granitetv.com). The Audit Committee Charter is reviewed annually and updated as necessary to reflect changes in regulatory requirements, authoritative guidance, and evolving practices. The Board of Directors has determined that each Audit Committee member is independent and has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. The Audit Committee held eight meetings during 2005. The members of the Audit Committee are Messrs. Hamilton (Chairman), Greenwald and Brown. The Board has determined that Mr. Brown is an audit committee financial expert within the meaning of applicable regulations of the U.S. Securities and Exchange Commission.

Compensation Committee. The Compensation Committee consists of four members of our Board of Directors that are independent directors. The primary responsibilities of the Compensation Committee are to (a) review and recommend to the Board the compensation of the Chief Executive Officer and other officers of our company, (b) review executive bonus plan allocations, (c) oversee and advise the Board on the adoption of policies that govern our compensation programs, (d) oversee the administration of our equity-based compensation and other benefit plans, and (e) approve grants of stock options and stock awards to our officers and employees under our equity plans, subject to certain limitations. The Compensation Committee’s role includes producing the report on executive compensation required by SEC rules and regulations. The specific responsibilities and functions of the Compensation Committee are delineated in the Compensation Committee Charter, which is available on our corporate web site (www.granitetv.com). The Compensation Committee Charter is reviewed annually and updated as necessary to reflect changes in regulatory requirements, authoritative guidance, and evolving practices. The Compensation Committee held two meetings during 2005. The members of the Compensation Committee are Ms. Pollard and Messrs. Settle (Chairman), Hamilton and Barfield.

Management Stock Plan Committee. The responsibility of the Management Stock Plan Committee is to administer our Management Stock Plan. The Management Stock Plan Committee is appointed by our Board of Directors and consists of two members of the Board of Directors that are non-employee directors. The Management Stock Plan Committee, from time to time, selects eligible employees to receive a discretionary bonus of Bonus Shares or a Performance Award based upon such employee’s position, responsibilities, contributions and value to us and such other factors as the Management Stock Plan Committee deems appropriate. The Management Stock Plan Committee has discretion to determine the date on which the Bonus Shares or Performance Awards allocated to an employee will be issued to such employee. The Management Stock Plan Committee may, in its sole discretion, determine what part of an award of Bonus Shares or Performance Awards is paid in cash and what part of an award is paid in the form of Common Stock (Nonvoting). The Management Stock Plan Committee held one meeting during 2005. The members of the Management Stock Plan Committee are Messrs. Settle and Hamilton.

Stock Option Committee. The Stock Option Committee consists of three members of the Board of Directors appointed by the Board. The Stock Option Committee is only authorized to grant Options to persons who are not then “covered employees” within the meaning of Section 162(m) of the Internal Revenue Code or who are not then our officers or holders of 10% or more of the Voting Common Stock. The Stock Option Committee had no meetings during 2005 (the Company did not award any stock options during 2005). The members of the Stock Option Committee are Messrs. Cornwell, Beck and Settle.

Section 16(a) Beneficial Ownership Reporting Compliance

Each of our director and officer who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, is required to report to the Securities and Exchange Commission, by a specified date, his or her beneficial ownership of, or certain transactions in, our securities. Except as set forth below, based solely upon a review of such reports, we believe that all filing requirements under Section 16 were complied with on a timely basis.

For fiscal year 2005 Messrs. Wills and Deushane did not report, on a timely basis, four transactions on one Form 4, Mr. Cornwell did not report, on a timely basis, three transactions on two Form 4s, and Mr. Aubry did not report on a timely basis his holdings on Form 3. All of the reports referred to above have been filed.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer and the independent Board of Directors. A copy of this code is available on our website at www.granitetv.com. We intend to disclose any changes in or waivers from our code of conduct that are required to be publicly disclosed by posting such information on our Web site or by filing a Form 8-K.

Item 11. Executive Compensation

The following table sets forth the compensation paid to our Chief Executive Officer and each of its most highly compensated executive officers whose total cash compensation exceeded $100,000 for each of the three years in the period ended December 31, 2005:

Summary Compensation Table

						Long-Term Compensation Awards
	Annual Compensation			Bonus		Restricted Stock			Securities Underlying Options/	All Other Compensation
Name and Principal Position	Year	Salary ($ )		($ ) (1)		Awards			SARs (#)	($ )(2)

W. Don Cornwell	2005	$	605,000	$	450,425	$	—		—	$	6,000
Chief Executive Officer	2004	672,000		480,000		7,500		(3)	—	5,125
	2003	672,000		679,000		96,000		(4)		6,000

John Deushane	2005	$	290,000	$	236,500	$	15,750	(5)	—	$	14,850
Chief Operating Officer	2004	300,000		170,000		21,850		(6)	—	14,725
	2003	—		—		—			—	—

Robert E. Selwyn, Jr.	2005	$	200,000	$	70,000	$	—		—	$	14,850
Senior Operating Advisor	2004	325,000		60,000		—			—	14,725
	2003	400,000		75,000		—			—	15,600

Lawrence I. Wills	2005	$	240,000	$	206,500	$	15,750	(5)	—	$	14,850
Senior Vice President -	2004	250,000		175,000		53,250		(7)	—	23,125
Chief Financial Officer	2003	242,500		200,000		—			—	24,000

(1) Represents earned cash bonuses for service rendered in 2005, 2004 and 2003 that were paid in the subsequent year. (See “Employee Agreements and Compensation Arrangements”.)

(2) The amounts shown in this column consists of a matching contribution by us under our Employees’ Profit Sharing and Savings (401(k)) Plan and an annual perquisite allowance for Messrs. Deushane, and Selwyn of $9,600 each applicable year and $18,000 for Mr. Wills in 2005, 2004 and 2003, respectively.

(3) Represents the market value on the date of award of 30,000 Bonus Shares awarded under our Management Stock Plan on October 19, 2004 for services rendered during the year-ended December 31, 2004.

(4) Represents the market value on the date of award of 24,752 Bonus Shares awarded under our Management Stock Plan on January 9, 2003 for services rendered during the year-ended December 31, 2002 and 25,000 Bonus Shares awarded under the Management Stock Plan on January 5, 2004 for services rendered during the year-ended December 31, 2003.

(5) Represents the market value on the date of award of 75,000 Bonus Shares awarded under our Management Stock Plan on November 21, 2005 for services rendered during the year-ended December 31, 2005 for both Messrs. Deushane and Wills.

(6) Represents the market value on the date of award of 5,000, 40,000 and 10,000 Bonus Shares awarded under our Management Stock Plan on February 25, 2004, October 19, 2004 and December 1, 2004, respectively, for services rendered during the year-ended December 31, 2004.

(7) Represents the market value on the date of award of 25,000, 40,000 and 10,000 Bonus Shares awarded under our Management Stock Plan on February 25, 2004, October 19, 2004 and December 1, 2004, respectively, for services rendered during the year-ended December 31, 2004.

401(k) Profit Sharing and Savings Plan

Effective January 1990, we adopted the Granite Broadcasting Corporation Employees’ Profit Sharing and Savings (401(k)) Plan, or the 401(k) Plan for the purpose of providing retirement benefits for substantially all of our employees. We and our employees both make contributions to the 401(k) Plan. We match 50% of that part of an employee’s deferred compensation that does not exceed 5% of such employee’s salary. Company-matched contributions vest at a rate of 20% for each year of an employee’s service to our company.

We made an aggregate contribution to the 401(k) Plan of $518,000 during 2005.

Employee Stock Purchase Plan

On February 28, 1995, we adopted the Granite Broadcasting Corporation Employee Stock Purchase Plan, or the Stock Purchase Plan, for the purpose of enabling our employees to acquire ownership of shares of Common Stock (Nonvoting) at a discount, thereby providing an additional incentive to promote the growth and profitability of our company. The Stock Purchase Plan enables our employees to purchase up to an aggregate of 1,000,000 shares of Common Stock (Nonvoting) at 85% of the then current market price through application of regularly made payroll deductions. A Committee consisting of not less than two directors who are ineligible to participate in the Stock Purchase Plan administers the Stock Purchase Plan. The members of the Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion of the Committee, purchases under the Stock Purchase Plan may be effected through issuance of authorized but previously unissued shares, treasury shares or through open market purchases. The Committee has engaged a brokerage company to administer the day-to-day functions of the Stock Purchase Plan. Purchases under the Stock Purchase Plan commenced on June 1, 1995.

Stock Option Plan

In April 1990, we adopted a Stock Option Plan, or the Stock Option Plan, providing for the grant, from time to time, of Options to key employees and officers of our company or its affiliates to purchase shares of Common Stock (Nonvoting). The Stock Option Plan terminated on April 1, 2000. As of March 15, 2006, options granted under the Stock Option Plan were outstanding for the purchase of 3,304,200 shares of Common Stock (Nonvoting).

2000 Stock Option Plan

On April 27, 2000, we adopted a stock option plan, which provides for the grant to employees, officers, directors and consultants of our company or its affiliates, collectively known as Participating Persons, to purchase an aggregate of 4,000,000 shares of Common Stock (Nonvoting) of the following:

• Options intended to qualify as Incentive Stock Options, or ISOs, as defined in Section 422 of the Code and

• Options which do not qualify as ISOs, or NQSOs.

On April 23, 2002, the Director Participants were granted an option to purchase 50,000 shares Common Stock (Nonvoting) as additional compensation for attendance at regular quarterly meetings during the period beginning on July 1, 2002 and ending on October 31, 2004 in lieu of additional cash compensation. Of each such grant, Options to purchase 5,000 shares of Common Stock (Nonvoting) become exercisable on the date of attendance in person or by telephonic means, of a Director Participant at each regular quarterly meeting of the Board of Directors.

No Participating Person may be granted ISOs which, when first exercisable in any calendar year (combined with ISOs under all incentive stock option plans of our company and its affiliates) will permit such person to purchase stock of our company having an aggregate fair market value (determined as of the time the ISO was granted) of more than $100,000.

The 2000 Stock Option Plan is administered by both the Stock Option Committee which consists of not less than three members of the Board of Directors appointed by the Board, and our Compensation Committee, which consists of not less than two members all of whom are non-employee directors. We refer to the Stock Option Committee and the Compensation Committee collectively as the Committee. The Stock Option Committee is only authorized to grant Options to persons who are not then “covered employees” within the meaning of Section 162(m) of the Internal Revenue Code or who are not then our officers or holders of 10% or more of the Voting Common Stock. The Compensation Committee is authorized to make determinations with respect to all other persons. Subject to the provisions of the 2000 Stock Option Plan, the Committee is empowered to, among other things, grant Options under the 2000 Stock Option Plan; determine which participating persons may be granted Options under the 2000 Stock Option Plan, the type of Option granted (ISO or NQSO), the number of shares subject to each Option, the time or times at which Options may be granted and exercised and the exercise price thereof; construe and interpret the 2000 Stock Option Plan; determine the terms of any option agreement pursuant to which Options are granted, and amend any option agreement with the consent of the recipient of Options, or Optionee.

The Management Stock Plan is administered by a committee appointed by the Board of Directors which consists of not less than two members of the Board of Directors, which we refer to as the Management Stock Plan Committee. The Management Stock Plan Committee, from time to time, selects eligible employees to receive a discretionary bonus of Bonus Shares or a Performance Award based upon such employee’s position, responsibilities, contributions and value to our company and such other factors as the Management Stock Plan Committee deems appropriate. Receipt of awards granted under the Management Stock Plan may be deferred. The Management Stock Plan Committee has discretion to determine the date on which the Bonus Shares or Performance Awards allocated to an employee will be issued to such employee. The Management Stock Plan Committee may, in its sole discretion, determine what part of an award of Bonus Shares or Performance Awards is paid in cash and what part of an award is paid in the form of Common Stock (Nonvoting). Any cash settlement of an award denominated in shares of Common Stock (Nonvoting) will be made to such employee as of the date the corresponding shares of Common Stock (Nonvoting) would otherwise be issued to such employee and shall be in an amount equal to the fair market value of such shares of Common Stock (Nonvoting) on that date.

The aggregate number of shares of Common Stock (Nonvoting) that may be granted under the Management Stock Plan is 2,500,000.

As of March 15, 2006, we had allocated a total of 2,035,425 shares of Common Stock (Nonvoting) pursuant to the Management Stock Plan, 1,958,925 of which had vested through March 15, 2006.

Directors Stock Option Plan

On March 1, 1994, we adopted a Director Stock Option Plan, providing for the grant, from time to time, of Options that are NQSOs to our non-employee directors, who we refer to as Director Participants, to purchase shares of Common Stock (Nonvoting). Non-employee directors may also receive grants of Options under the 2000 Stock Option Plan. All such grants vest in increments in connection with attendance by Director Participants at board or committee meetings, as applicable. Under the Directors Stock Option Plan, the exercise price per share of all Options is the fair market value on the date of grant.

Non-employee directors elected or appointed during the course of a three-year or five year option period receive Options, in lieu of a cash compensation, for the remaining portion of such period.

The Board of Directors may provide, at or subsequent to the date of grant of any Option, that in the event the Director Participant pays the exercise price for the Option by tendering shares of Common Stock (Nonvoting) previously owned by the Director Participant, the Director Participant will automatically be granted a Reload Option for the number of shares of Common Stock (Nonvoting) used to pay the exercise price plus the number of shares withheld to pay for taxes associated with the Option exercise. The Reload Option has an exercise price equal to the fair market value of the Common Stock (Nonvoting) on the date of grant of the Reload Option and remains exercisable for the remainder of the term of the Option to which it relates.

Unless otherwise specifically provided in a Director Participant’s Option Agreement and except in the case of Reload Options as described above, each Option granted under the Directors Stock Option Plan expires no later than 10 years after the date the Option is granted. Options may be exercised only during the period that the original optionee is a non-employee director and (i) for a period of six months after the death or disability of the Director Participant or (ii) for a period of 2 years after termination of the Director Participant’s directorship for any other reason.

The aggregate number of shares of Common Stock (Nonvoting) allocated for grant under the Directors Stock Option Plan is 1,500,000. As of March 15, 2006, Options granted under the Directors Stock Option Plan were outstanding for the purchase of 660,250 shares of Common Stock (Nonvoting).

Non-Employee Directors Stock Plan

On April 29, 1997, we adopted a Non-Employee Directors Stock Plan for the purpose of providing a means to attract and retain highly qualified persons to serve as our non-employee directors and to enable such persons to acquire or increase a proprietary interest in our company. The Non-Employee Directors Stock Plan provided for that on January 1^st of each calendar year during the term of the Non-Employee Directors Stock Plan, our non-employee directors, who we refer to as Directors Stock Plan Participants, shall receive a number of shares of Common Stock (Nonvoting) equal to $50,000 divided by the fair market value per share on the date of grant; provided, that, any Directors Stock Plan Participant may elect prior to the grant date to be paid up to $30,000 of such grant in cash in lieu of shares having an aggregate fair market value equal to the amount of such cash payment. If a person first becomes a non-employee director after January 1^st of any calendar year, such a person receives a prorated grant based on the number of regular board meetings scheduled from the date of his or her commencement of service as a director until December 31^st of that year. Each Directors Stock Plan Participant may elect to defer the payment of shares of Common Stock (Nonvoting) by filing an irrevocable written election with our Secretary. On December 31, 2004, the Company’s Board of Directors suspended the Director Stock Plan until such time the Board of Directors determines otherwise.

Non-Employee Directors Compensation

Effective beginning January 1, 2005, each eligible non-employee director receives an annual fee of $45,000 for director services payable semiannually in equal increments in cash.

The Non-Employee Directors Stock Plan, unless earlier terminated by action of the Board of Directors, will terminate at such time as no shares remain available for issuance under the Non-Employee Directors Stock Plan and our company and the Directors Stock Plan Participants have no further rights or obligations under the Non-Employee Directors Stock Plan. The aggregate number of shares of Common Stock (Nonvoting) issuable under the Non-Employee Directors Stock Plan is 600,000. As of March 15, 2006, 532,698 shares had been granted under the Non-Employee Directors Stock Plan.

There were no Options granted to our executive officers during 2005.

The following table sets forth, as of December 31, 2005, the number of options and the value of unexercised options held by our executive officers that held options as of that date, and the options exercised and the consideration received therefore by such persons during fiscal 2005:

Aggregated Option/SAR Exercises
In Last Fiscal Year And
FY-End Option/SAR Values

Name	Shares Acquired on Exercise (#)	Value Realized ($)	Number of Securities Underlying Unexercised Options at December 31, 2005		Value of Unexercised in-the-Money Options at December 31, 2005 ($)
Name	Shares Acquired on Exercise (#)	Value Realized ($)	Exercisable	Unexercisable	Exercisable	Unexercisable

W. Don Cornwell	—	—	985,600	610,000	—	—

John Deushane	—	—	220,500	—	—	—

Robert E. Selwyn, Jr.	—	—	350,000	—	—	—

Lawrence I. Wills	—	—	178,750	2,500	—	—

Compensation Committee Interlocks and Insider Participation

During 2005, Thomas R. Settle, Charles J. Hamilton, Jr., Veronica Pollard and Jon E. Barfield served as members of the Compensation Committee of our Board of Directors.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (Akin to Update)

The following table sets forth certain information, as of March 7, 2006, regarding beneficial ownership of our (i) Voting Common Stock by each shareholder who is known by us to own beneficially more than 5% of the outstanding Voting Common Stock, each director, each executive officer and all directors and officers as a group, and (ii) Common Stock (Nonvoting) (assuming exercise of all options for the purchase of Common Stock (Nonvoting), which exercise is at the option of the holder within sixty (60) days) by each director, each executive officer and all directors and officers as a group. We also have 200,376 shares of our 12.75% Cumulative Exchangeable Preferred Stock outstanding, none of which are owned by any of our officers or directors. Except as set forth in the footnotes to the table, each shareholder listed below has informed us that such shareholder has (i) sole voting and investment power with respect to such shareholder’s shares of stock, except to the extent that authority is shared by spouses under applicable law and (ii) record and beneficial ownership with respect to such shareholder’s shares of stock.

	Voting Common Stock Shares Beneficially Owned			Common Stock (Nonvoting) Shares Beneficially Owned
	Number	Percent		Number		Percent(1)

W. Don Cornwell	98,250	100.0	%	1,708,727	(2)	8.24	%

Stuart J. Beck				1,326,953	(3)	6.42	%

John Deushane				459,974	(4)	2.30	%

Robert E. Selwyn, Jr.				475,781	(5)	2.37	%

Lawrence I. Wills				318,325	(6)	1.60	%

James L. Greenwald				263,856	(7)	1.33	%

Edward Dugger III				186,530	(8)		*

Thomas R. Settle				468,740	(9)	2.35	%

Charles J. Hamilton, Jr.				247,805	(10)	1.24	%

M. Fred Brown				139,075	(11)		*

Jon E. Barfield				233,628	(12)	1.17	%

Veronica Pollard				205,811	(13)	1.04	%

Eugene I. Davis				0			*

Kirk W. Aubry				0			*

All directors and officers as a group	98,250	100.0	%	6,035,205		25.80	%

* Less than 1%.

(1) Percentage figures assume the exercise of options for the purchase of Common Stock (Nonvoting) held by such shareholder, which conversion or exercise is at the option of the holder within sixty days.

(2) Includes 985,600 shares issuable upon exercise of options granted to Mr. Cornwell under the Stock Option Plan that are exercisable at the option of the holder within sixty days and a total of 29,200 shares held by Mr. Cornwell’s immediate family. Mr. Cornwell disclaims beneficial ownership with respect to such 29,200 shares. The business address of Mr. Cornwell is Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New York, 10017.

(3) Includes 904,600shares issuable upon exercise of options granted to Stuart J. Beck under the Stock Option Plan which are exercisable at the option of the holder within sixty days and a total of 8,000 shares held in trust for Mr. Beck’s children. Mr. Beck disclaims beneficial ownership with respect to such 8,000 shares. The business address of Mr. Stuart Beck is Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New York, 10017.

Item 13. Certain Relationships and Related Transactions

Between 1995 and 1998, we loaned Mr. Cornwell, Chief Executive Officer and Chairman of the Board of Directors, $2,911,000 in four separate transactions to pay the exercise price on stock options exercises and certain personal income taxes. On January 1, 2001, we loaned Mr. Cornwell an additional $375,000 to repay a loan, for which the proceeds had been used by Mr. Cornwell to acquire shares of the Company’s common stock in the open market. On February 15, 2001, we agreed to consolidate the five loans into one loan in the amount of $3,286,000. The promissory note matured on January 25, 2006. Interest at an annual rate of 6.75% was imputed on the promissory note as additional compensation to the officer. On February 15, 2001 we forgave $232,247 of interest accrued on Mr. Cornwell’s loans during the year ended December 31, 2000.

On February 25, 2003, the Compensation Committee recommended, and the Board of Directors approved, an incentive award of $3,286,065 to each of Mr. Cornwell and Mr. Beck to be paid, subject to vesting terms, only upon the occurrence of the refinancing with a maturity of at least two years of the senior debt due April 15, 2004. On December 22, 2003, we issued $405 million aggregate principal amount of 9 3/4 % Senior Secured Notes, the proceeds of which we used in part to repay all outstanding borrowings (plus accrued interest) under our then outstanding senior credit agreement, which satisfied the performance objective of the awards. Mr. Cornwell’s award, which vests in one-third tranches over three years from the refinancing date, was to be used to repay in full his outstanding loan from us of $3,286,065 due January 25, 2006. Mr. Cornwell irrevocably elected to defer payment of the first two tranches under his performance award until January 25, 2006 when his loan was due. On March 1, 2005, the Board of Directors approved the acceleration of payment of the third tranche of Mr. Cornwell’s award to January 25, 2006. On September 21, 2004, we and Stuart J. Beck amended the Performance Award and deferral of such payments pursuant to the Separation Agreement. Under the amended terms of the Performance Award, Mr. Beck’s Performance Award fully vested as of the separation date and payment of $221,200 was made on September 30, 2004 to repay his outstanding promissory note to us. The remaining vested award of $3,065,000 is payable in cash on December 22, 2006. The Company’s Management Stock Plan, pursuant to which the performance award was granted, permits the Compensation Committee, in its sole discretion, to require as a condition to payment of an award, that the award recipient pay to the Company the amount of any taxes that the Company is required to withhold. The Compensation Committee has so elected to require Mr. Cornwell to pay to the Company the applicable withholding taxes with respect to the performance award. Mr. Cornwell has informed the Company that he is presently unable to do so, since the full amount of the performance award must be used to satisfy his outstanding loan from the Company. In light of the forgoing, the Company has neither paid the performance award to Mr. Cornwell nor offset the amount of the award in repayment of the loan, which loan remains due and payable.

On September 21, 2004, we and Stuart J. Beck, President and Secretary, mutually agreed upon Mr. Beck’s resignation from the company in connection with his appointment as Ambassador/Permanent Representative of the Republic of Palau to the United Nations. Mr. Beck remained on our Board of Directors. Pursuant to his Separation Agreement, as approved by the Company’s Board of Directors, we granted Mr. Beck severance totaling $1,008,000, payable in equal installments over eighteen months from the date of separation. In addition, Mr. Beck received a pro-rated bonus of approximately $255,600 as determined by the Company’s Compensation Committee and pursuant to the Separation Agreement based upon achievements of certain financial targets in 2004 which was paid during the first quarter of 2005.

On September 21, 2004, pursuant to the Separation Agreement we modified the terms of Mr. Beck’s outstanding stock option awards. Under the original provisions of the stock option awards, when an employee separates from the Company for reasons other than (i) death or disability or (ii) the occurrence of a Change of Control, any unvested options would be forfeited and the employee would have thirty days from the date of separation to exercise any vested portion of the stock option award. Under the modified terms pursuant to the Separation Agreement, Mr. Beck will continue to vest and have exercise rights in his outstanding stock option awards as of September 21, 2004 until the earlier of (A) the later of January 2, 2007 and 30 days after the last day of Mr. Beck’s continuous service on the Company’s Board of Directors and (B) the fixed date on which each stock option award was initially set to expire.

During the fourth quarter of 2004 and pursuant to the Separation Agreement dated September 21, 2004, Mr. Beck exchanged 80,250 shares of the Company’s Class A Voting Common Stock, par value $0.01 per share, for 80,250 shares of the Company’s Class B Non-Voting Common Stock, par value $0.01 per share.

During the year ended December 31, 2004, we recorded one-time expenses for the separation benefits and acceleration of the remaining portion of the Performance Award of approximately $1,290,000 and $1,562,000, respectively.

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

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)1 Financial statements and the schedule filed as a part of this report are listed on the “Index to Consolidated Financial Statements” at page 45 herein. All other schedules are omitted because they are not applicable to us.

(a)3 Exhibits

2.1		Purchase and Sale Agreement, dated as of April 23, 2004, by and among Malara Broadcast Group of Fort Wayne, LLC, WPTA-TV, Inc., WPTA-TV License, Inc. and Granite Broadcasting Corporation (incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)

2.2		Stock Purchase Agreement, dated as of April 23, 2004, by and among Granite Broadcasting Corporation, NVG-Fort Wayne, Inc. and New Vision Group, LLC (incorporated by reference to Exhibit 2.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)

2.3		Purchase and Sale Agreement, dated as of September 8, 2005, by and among AM Broadcasting KBWB, Inc., Granite Broadcasting Corporation, KBWB, Inc. and KBWB License, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on September 9, 2005)

2.4		Purchase and Sale Agreement, dated as of September 8, 2005, by and among AM Broadcasting WXON, Inc., Granite Broadcasting Corporation, WXON, Inc. and WXON License, Inc. (incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed on September 9, 2005)

2.5		Amendment, dated February 14, 2006, to that certain Purchase and Sale Agreement by and among AM Broadcasting KBWB, Inc., Granite Broadcasting Corporation, KBWB, Inc. and KBWB License, Inc., dated as of September 8, 2005 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 21, 2006)

2.6		Amendment, dated February 14, 2006, to that certain Purchase and Sale Agreement by and among AM Broadcasting WXON, Inc., Granite Broadcasting Corporation, WXON, Inc. and WXON License, Inc., dated as of September 8, 2005 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on February 21, 2006)

3.1		Third Amended and Restated Certificate of Incorporation of Granite Broadcasting Corporation, as amended (incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 29, 1995).

3.2		Amended and Restated Bylaws of Granite Broadcasting Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 1, 2005).

3.3		Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of our 12-3/4%, Cumulative Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof (incorporated by reference to Exhibit 3.3 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

4.1		Indenture, dated as of December 22, 2003, between Granite Broadcasting Corporation and The Bank of New York, as Trustee, relating to our $405,000,000 Principal Amount 9 3/4% Senior Secured Notes due December 1, 2010 (including form of note) (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on December 23, 2003).

4.2		Registration Rights Agreement, dated as of December 22, 2003, between Granite Broadcasting Corporation and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on December 23, 2003)

4.3		Indenture, dated as of January 31, 1997, between Granite Broadcasting Corporation and The Bank of New York for our 12-3/4% Series A Exchange Debentures and 12-3/4% Exchange Debentures due April 1, 2009 (incorporated by reference to Exhibit 4.44 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

4.4		Form of 12-3/4% Exchange Debenture due April 1, 2009 (included in the Indenture filed as Exhibit 4.3).

4.5		Warrant to purchase 753,491 shares of Common Stock (Nonvoting) of Granite Broadcasting Corporation issued March 6, 2001 to Goldman Sachs & Co. (incorporated by reference to Exhibit 4.55 to our Current Report on Form 8-K, filed on March 9, 2001).

4.6		Credit Agreement, dated as of March 8, 2005, by and among Malara Broadcast Group Inc., as Parent Guarantor, Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, as Borrowers, the lenders listed therein, as Lenders, D.B. Zwirn Special Opportunities Fund, L.P., as Administrative Agent, Dresdner Bank AG New York and Grand Cayman Branches, as Syndication Agent, and D. B. Zwirn Special Opportunities Fund, L.P., as Arranger (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on March 11, 2005)

4.7		First Supplemental Indenture, dated as of March 9, 2005, by and among Granite Broadcasting Corporation, the guarantors party thereto and The Bank of New York, as Trustee, supplementing that certain Indenture, dated as of December 22, 2003, relating to the Company’s $405,000,000 Principal Amount 9 3/4% Senior Secured Notes due December 1, 2010 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on March 11, 2005)

10.1		Granite Broadcasting Corporation Stock Option Plan, as amended through October 26, 1999 (incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed on March 30, 2000).

10.2		Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and W. Don Cornwell (incorporated by reference to Exhibit 10.13 to our Registration Statement No. 33-43770 filed on November 5, 1991).

10.3		Granite Broadcasting Corporation Management Stock Plan, as amended through January 1, 2003 (incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 28, 2003).

10.4		Granite Broadcasting Corporation Directors’ Stock Option Plan, as amended through October 26, 1999 (incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed on March 30, 2000).

10.5		Network Affiliation Agreement (WTVH-TV) (incorporated by reference to Exhibit 10.20 to our Registration Statement No. 33-94862 filed on July 21, 1995).

10.6		Granite Broadcasting Corporation Employee Stock Purchase Plan, dated February 28, 1995 (incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 29, 1995).

10.7		Network Affiliation Agreement (WKBW) (incorporated by reference to Exhibit 10.28 to our Current Report on Form 8-K filed on July 14, 1995).

10.8		Employment Agreement dated as of September 19, 1996 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. (incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

10.9		Non-Employee Directors Stock Plan of Granite Broadcasting Corporation, as amended through December 2, 2002 (incorporated by reference to Exhibit 10.31 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 28, 2003).

10.10		Extension Letter, dated February 28, 1999 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. extending the term of Mr. Selwyn’s Employment Agreement to January 31, 2003 (incorporated by reference to Exhibit 10.38 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 31, 1999).

10.11		Granite Broadcasting Corporation 2000 Stock Option Plan, dated as of April 25, 2000 (incorporated by reference to Exhibit 10.46 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed on May 15, 2000).

10.12		Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network (KSEE, KBJR-TV and WEEK-TV) (incorporated by reference to Exhibit 10.51 to our Current Report on Form 8-K, filed on March 9, 2001).

10.13		Stock Purchase Agreement, dated as of December 14, 2001, by and among National Broadcasting Company, Inc., Granite Broadcasting Corporation, KNTV Television, Inc. and KNTV License, Inc. (incorporated by reference to Exhibit 10.53 to our Current Report on Form 8-K, filed on December 19, 2001)

10.14		Amendment to Network Affiliation Agreement (WKBW) (incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 29, 2004).

10.15		Separation Agreement dated September 21, 2004 between Granite Broadcasting Corporation and Stuart J. Beck (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed on November 10, 2004).

10.16		Renewal of Network Affiliation Agreement, dated May 20, 2004, by and among The Warner Bros. Network, Granite Broadcasting Corporation and WDWB-TV (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed on November 10, 2004).

10.17		Guaranty, dated as of March 8, 2005, by Granite Broadcasting Corporation, in favor of and for the benefit of D.B. Zwirn Special Opportunities Fund, L.P., as agent for and representative of (“Guarantied Party”) the financial institutions (“Lenders”) party to that certain Credit Agreement dated as of March 8, 2005, by and among Malara Broadcast Group, Inc., Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, Dresdner Bank AG New York and Grand Cayman Branches, as Syndication Agent, Guarantied Party and Lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 11, 2005)

10.18		Network Affiliation Agreement (WISE) (incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 31, 2005).

10.19		Purchase And Sale Agreement, dated as of January 13, 2006, by and among Television Station Group Holdings, LLC Television Station Group, LLC Television Station Group License Subsidiary, LLC, WBNG, Inc. and WBNG License, Inc (incorporated by reference to Exhibit 10. to our Current Report on Form 8-K filed on January 17, 2006)

10.20		Form Of Security Agreement by Granite Broadcasting Corporation, as Issuer, and the Guarantors Party thereto and The Bank Of New York, as Collateral Agent (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on February 21, 2006)

10.21		Form of Mortgage, Assignment Of Leases And Rents, Security Agreement And Fixture Filing (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on February 21, 2006)

10.22		Reimbursement And Refinancing Agreement, dated as of March 8, 2005, by and by and among Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, and Granite Broadcasting Corporation (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on February 21, 2006)

21.		Subsidiaries of Granite Broadcasting Corporation.

23.		Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).

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

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

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

a/ Neither the Company nor any of its subsidiaries is party to this agreement; however, because it is anticipated that the results of Malara Broadcast Group Inc., Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC and Malara Broadcast Group of Fort Wayne Licensee LLC will be consolidated with the results of the Company for financial reporting purposes, this agreement of these entities is filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 31 ^st day of March, 2006.

GRANITE BROADCASTING CORPORATION

By:	/s/ W. DON CORNWELL
		W. Don Cornwell
		Chief Executive Officer and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

Signature	Title	Date

/s/ W. DON CORNWELL	Chief Executive Officer	March 31, 2006
(W. Don Cornwell)	(Principal Executive Officer) and Chairman of the Board of Directors

/s/ LAWRENCE I. WILLS	Senior Vice President – Chief Financial	March 31, 2006
(Lawrence I. Wills)	Officer and Secretary (Principal Financial Officer)

/s/ STUART J. BECK	Director	March 31, 2006
(Stuart J. Beck)

/s/ JAMES L. GREENWALD	Director	March 31, 2006
(James L. Greenwald)

/s/ EDWARD DUGGER III	Director	March 31, 2006
(Edward Dugger III)

/s/ THOMAS R. SETTLE	Director	March 31, 2006
(Thomas R. Settle)

/s/ CHARLES J. HAMILTON, JR.	Director	March 31, 2006
(Charles J. Hamilton, Jr.)

/s/ M. FRED BROWN	Director	March 31, 2006
(M. Fred Brown)

/s/ EUGENE I. DAVIS	Director	March 31, 2006
(Eugene I. Davis)

/s/ KIRK W. AUBRY	Director	March 31, 2006
(Kirk W. Aubry)

/s/ JON E. BARFIELD	Director	March 31, 2006
(Jon E. Barfield)

/s/ VERONICA POLLARD	Director	March 31, 2006
(Veronica Pollard)

Exhibit Index

Exhibit Number		Description

2.1		Purchase and Sale Agreement, dated as of April 23, 2004, by and among Malara Broadcast Group of Fort Wayne, LLC, WPTA-TV, Inc., WPTA-TV License, Inc. and Granite Broadcasting Corporation (incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)

2.2		Stock Purchase Agreement, dated as of April 23, 2004, by and among Granite Broadcasting Corporation, NVG-Fort Wayne, Inc. and New Vision Group, LLC (incorporated by reference to Exhibit 2.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, filed on May 10, 2004)

2.3		Purchase and Sale Agreement, dated as of September 8, 2005, by and among AM Broadcasting KBWB, Inc., Granite Broadcasting Corporation, KBWB, Inc. and KBWB License, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on September 9, 2005)

2.4		Purchase and Sale Agreement, dated as of September 8, 2005, by and among AM Broadcasting WXON, Inc., Granite Broadcasting Corporation, WXON, Inc. and WXON License, Inc. (incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed on September 9, 2005)

2.5		Amendment, dated February 14, 2006, to that certain Purchase and Sale Agreement by and among AM Broadcasting KBWB, Inc., Granite Broadcasting Corporation, KBWB, Inc. and KBWB License, Inc., dated as of September 8, 2005 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 21, 2006)

2.6		Amendment, dated February 14, 2006, to that certain Purchase and Sale Agreement by and among AM Broadcasting WXON, Inc., Granite Broadcasting Corporation, WXON, Inc. and WXON License, Inc., dated as of September 8, 2005 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on February 21, 2006)

3.1		Third Amended and Restated Certificate of Incorporation of Granite Broadcasting Corporation, as amended (incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 29, 1995).

3.2		Amended and Restated Bylaws of Granite Broadcasting Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on January 1, 2005).

3.3		Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of our 12-3/4%, Cumulative Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof (incorporated by reference to Exhibit 3.3 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

4.1		Indenture, dated as of December 22, 2003, between Granite Broadcasting Corporation and The Bank of New York, as Trustee, relating to our $405,000,000 Principal Amount 9 3/4% Senior Secured Notes due December 1, 2010 (including form of note) (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on December 23, 2003).

4.2		Registration Rights Agreement, dated as of December 22, 2003, between Granite Broadcasting Corporation and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on December 23, 2003)

4.3		Indenture, dated as of January 31, 1997, between Granite Broadcasting Corporation and The Bank of New York for our 12-3/4% Series A Exchange Debentures and 12-3/4% Exchange Debentures due April 1, 2009 (incorporated by reference to Exhibit 4.44 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

4.4		Form of 12-3/4% Exchange Debenture due April 1, 2009 (included in the Indenture filed as Exhibit 4.3).

4.5/a		Warrant to purchase 753,491 shares of Common Stock (Nonvoting) of Granite Broadcasting Corporation issued March 6, 2001 to Goldman Sachs & Co. (incorporated by reference to Exhibit 4.55 to our Current Report on Form 8-K, filed on March 9, 2001).

4.6		Credit Agreement, dated as of March 8, 2005, by and among Malara Broadcast Group Inc., as Parent Guarantor, Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, as Borrowers, the lenders listed therein, as Lenders, D.B. Zwirn Special Opportunities Fund, L.P., as Administrative Agent, Dresdner Bank AG New York and Grand Cayman Branches, as Syndication Agent, and D. B. Zwirn Special Opportunities Fund, L.P., as Arranger (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on March 11, 2005)

4.7		First Supplemental Indenture, dated as of March 9, 2005, by and among Granite Broadcasting Corporation, the guarantors party thereto and The Bank of New York, as Trustee, supplementing that certain Indenture, dated as of December 22, 2003, relating to the Company’s $405,000,000 Principal Amount 9 3/4% Senior Secured Notes due December 1, 2010 (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on March 11, 2005)

10.1		Granite Broadcasting Corporation Stock Option Plan, as amended through October 26, 1999 (incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed on March 30, 2000).

10.2		Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and W. Don Cornwell (incorporated by reference to Exhibit 10.13 to our Registration Statement No. 33-43770 filed on November 5, 1991).

10.3		Granite Broadcasting Corporation Management Stock Plan, as amended through January 1, 2003 (incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 28, 2003).

10.4		Granite Broadcasting Corporation Directors’ Stock Option Plan, as amended through October 26, 1999 (incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed on March 30, 2000).

10.5		Network Affiliation Agreement (WTVH-TV) (incorporated by reference to Exhibit 10.20 to our Registration Statement No. 33-94862 filed on July 21, 1995).

10.6		Granite Broadcasting Corporation Employee Stock Purchase Plan, dated February 28, 1995 (incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 29, 1995).

10.7		Network Affiliation Agreement (WKBW) (incorporated by reference to Exhibit 10.28 to our Current Report on Form 8-K filed on July 14, 1995).

10.8		Employment Agreement dated as of September 19, 1996 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. (incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997).

10.9		Non-Employee Directors Stock Plan of Granite Broadcasting Corporation, as amended through December 2, 2002 (incorporated by reference to Exhibit 10.31 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 28, 2003).

10.10		Extension Letter, dated February 28, 1999 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. extending the term of Mr. Selwyn’s Employment Agreement to January 31, 2003 (incorporated by reference to Exhibit 10.38 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 31, 1999).

10.11		Granite Broadcasting Corporation 2000 Stock Option Plan, dated as of April 25, 2000 (incorporated by reference to Exhibit 10.46 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed on May 15, 2000).

10.12		Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network (KSEE, KBJR-TV and WEEK-TV) (incorporated by reference to Exhibit 10.51 to our Current Report on Form 8-K, filed on March 9, 2001).

10.13		Stock Purchase Agreement, dated as of December 14, 2001, by and among National Broadcasting Company, Inc., Granite Broadcasting Corporation, KNTV Television, Inc. and KNTV License, Inc. (incorporated by reference to Exhibit 10.53 to our Current Report on Form 8-K, filed on December 19, 2001)

10.14		Amendment to Network Affiliation Agreement (WKBW) (incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 29, 2004).

10.15		Separation Agreement dated September 21, 2004 between Granite Broadcasting Corporation and Stuart J. Beck (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended
		September 30, 2004, filed on November 10, 2004).

10.16		Renewal of Network Affiliation Agreement, dated May 20, 2004, by and among The Warner Bros. Network, Granite Broadcasting Corporation and WDWB-TV (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed on November 10, 2004).

10.17		Guaranty, dated as of March 8, 2005, by Granite Broadcasting Corporation, in favor of and for the benefit of D.B. Zwirn Special Opportunities Fund, L.P., as agent for and representative of (“Guarantied Party”) the financial institutions (“Lenders”) party to that certain Credit Agreement dated as of March 8, 2005, by and among Malara Broadcast Group, Inc., Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, Dresdner Bank AG New York and Grand Cayman Branches, as Syndication Agent, Guarantied Party and Lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 11, 2005)

10.18		Network Affiliation Agreement (WISE) (incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 31, 2005).

10.19		Purchase And Sale Agreement, dated as of January 13, 2006, by and among Television Station Group Holdings, LLC Television Station Group, LLC Television Station Group License Subsidiary, LLC, WBNG, Inc. and WBNG License, Inc (incorporated by reference to Exhibit 10. to our Current Report on Form 8-K filed on January 17, 2006)

10.20		Form Of Security Agreement by Granite Broadcasting Corporation, as Issuer, and the Guarantors Party thereto and The Bank Of New York, as Collateral Agent (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on February 21, 2006)

10.21		Form of Mortgage, Assignment Of Leases And Rents, Security Agreement And Fixture Filing (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on February 21, 2006)

10.22		Reimbursement And Refinancing Agreement, dated as of March 8, 2005, by and by and among Malara Broadcast Group of Duluth LLC, Malara Broadcast Group of Duluth Licensee LLC, Malara Broadcast Group of Fort Wayne LLC, Malara Broadcast Group of Fort Wayne Licensee LLC, and Granite Broadcasting Corporation (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on February 21, 2006)

21.		Subsidiaries of Granite Broadcasting Corporation.

23.		Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).

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

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

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

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

KBWB, San Francisco-Oakland-San Jose, California

WDWB, Detroit, Michigan

WKBW, Buffalo, New York

KSEE, Fresno-Visalia, California

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

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

	Page
Report of Independent Registered Public Accounting Firm	49
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003	50
Consolidated Balance Sheets as of December 31, 2005 and 2004	51
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2005, 2004 and 2003	52
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003	53
Notes to the Consolidated Financial Statements	54
Schedule II — Valuation and Qualifying Accounts	75

Allowance for Doubtful Accounts	Balance at beginning of year			Amount charged to costs and expenses			Amount written off(1)			Balance at end of year

For the year ended December 31, 2005	$	967,000	(2)	$	134,000		$	(469,000	)	$	632,000

For the year ended December 31, 2004	1,319,000			(299,000		)	(124,000		)	896,000

For the year ended December 31, 2003	$	748,000		$	541,000		$	30,000		$	1,319,000

	Fiscal Year December 31,
	2005		2004
Audit fees	$	955,000	$	998,440
Audit-related fees	40,000		159,500
Tax fees	267,250		260,650

Total	$	1,262,250	$	1,418,590

GRANITE SUBSIDIARIES		JURISDICTION OF ORGANIZATION

Granite Response Television, Inc.		Delaware
KBJR License, Inc.		Delaware
KBWB License, Inc.		Delaware
KSEE License, Inc.		Delaware
KBWB, Inc.		Delaware
Queen City Broadcasting of New York, Inc.		New York
KBJR, Inc.		Delaware
KSEE Television, Inc.		Delaware
WBNG, Inc.		Delaware
WBNG, License, Inc.		Delaware
WEEK-TV License, Inc.		Delaware
WKBW-TV License, Inc.		Delaware
WISE-TV, Inc.		Delaware
WISE-TV License, LLC		Delaware
WTVH License, Inc.		Delaware
WTVH, LLC		Delaware
WXON License, Inc.		Delaware
WXON, Inc.		Delaware
Channel 11 License, Inc.		Delaware

Date: March 31, 2006


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

Dated: March 31, 2006

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


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