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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

The total number of shares of common stock, par value $.01 per share, outstanding as of August 14, 2002 was 3,000. The Registrant has no other class of common stock outstanding.

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PART I

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NEXTMEDIA OPERATING, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)

The accompanying Notes are an integral part of these Consolidated Financial Statements

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NEXTMEDIA OPERATING, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(unaudited)

The accompanying Notes are an integral part of these Consolidated Financial Statements

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NEXTMEDIA OPERATING, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

The accompanying Notes are an integral part of these Consolidated Financial Statements

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NEXTMEDIA OPERATING, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.    INTERIM FINANCIAL DATA AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Management believes that we have made all adjustments necessary for a fair presentation of results of the interim periods and that these adjustments were of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. The interim results of operations and cash flows are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2002 due to seasonality and other factors. The consolidated financial statements should be read in conjunction with the consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in the registration statement on Form S-4, as filed with the Securities and Exchange Commission on March 15, 2002 relating to $200.0 million aggregate principal amount of our senior subordinated notes (the “registration statement”). In this quarterly report on Form 10-Q, the terms “we”, “our” and “us” refer to NextMedia Operating, Inc. and its subsidiaries, and the term “NextMedia” refers only to NextMedia Operating, Inc.

Short-term Investments

From time to time, we invest cash on-hand in liquid investments with maturities at date of purchase of one year or less. These investments are typically certificates of deposit or U.S. government securities, such as Treasury Bills. These investments are classified as available for sale.

2.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”). Statement 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. Statement 142 establishes new accounting for goodwill and other intangible assets recorded in business combinations. Under the new rules, goodwill and intangible assets deemed to have indefinite lives, such as FCC broadcast licenses, are no longer amortized but are subject to annual impairment tests in accordance with the statement. Other intangible assets will continue to be amortized over their useful lives.

In connection with the suspension of amortization of these assets, we currently expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. Accordingly, on January 1, 2002, we recorded a one time non-cash charge of $8.3 million to deferred tax expense to establish an additional valuation allowance against its deferred tax assets. We recorded additional deferred tax expense of $9.6 million to establish a valuation allowance against net operating loss carry-forwards generated during the six months ended June 30, 2002, resulting from amortization of goodwill and broadcast licenses that is deductible for tax purposes, but is no longer amortized in the financial statements. We do not expect the adoption of Statement 142 to have any impact on our cash flow.

In April 2002, the Financial Accounting Standards Board issued 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 (“Statement 145”). Statement 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Statement 145 also rescinds FASB Statement No. 44, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Statement 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Early adoption of Statement 145 is encouraged and may be as of the beginning of the fiscal year or as of the beginning of the interim period in which the statement was issued.

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Management does not believe the adoption of this statement will have a material impact on our financial position, cash flows of results of operations.

In June 2002, the FASB issued Statement No. 146 (“Statement 146”), which addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Taskforce Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring).” The provisions of Statement 146 are effective for exit or disposal activities initiated after December 31, 2002. We believe that Statement 146 may have a prospective effect on our financial statements for costs associated with future exit or disposal activities.

3.     ACQUISITIONS AND DISPOSITIONS

During the first quarter of 2002, we acquired certain outdoor advertising assets in several transactions with an aggregate purchase price of approximately $2.6 million, excluding acquisition costs of $270,000 and sold radio station WKKD-AM, located in Aurora, Illinois for approximately $800,000.

During the second quarter of 2002, we acquired certain other outdoor advertising assets in several transactions with an aggregate purchase price of approximately $3.1 million. In addition, we entered into a contract to sell the assets of radio stations WYOO-FM, WPCF-AM, WQJM-FM, WILN-FM and WYYX-FM in exchange for approximately $5.5 million in cash. The assets to be sold consist primarily of FCC licenses, broadcast equipment and accounts receivable. We have recorded a loss of approximately $3.3 million in discontinued operations in the second quarter for the difference between the carrying value of this reporting unit and the expected proceeds of the sale, less expected selling costs. We have classified the remaining carrying value of the assets to be sold as held for sale on the balance sheet and the results of operations for this reporting unit have been classified as discontinued operation in all periods presented. During the three- and six-month periods ended June 30, 2002, these assets generated net revenues of approximately $381,000 and $730,000, respectively. Management decided to sell these assets because we believe there are alternative uses of capital which may provide a higher return on investment.

4.     PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

5.     INTANGIBLE ASSETS AND GOODWILL

The following table presents the impact of Statement 142 on net earnings (loss) as if the standard had been in effect for the six months ended June 30, 2001:

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Definite-lived Intangibles

We have definite-lived intangible assets recorded that continue to be amortized in accordance with Statement 142. These assets consist primarily of non-compete agreements and other contractual rights which are amortized over the respective lives of the agreements. In accordance with the transitional requirements of Statement 142, we reassessed the useful lives of these intangibles and made no material changes to their useful lives. The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at June 30, 2002 and December 31, 2001:

Total amortization expense from definite-lived intangibles for the six months ended June 30, 2002 and for the year ended December 31, 2001 was approximately $294,000 and $568,000, respectively. The following table presents our estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of January 1, 2002:

Indefinite-lived Intangibles and Goodwill

Under the guidance in Statement 142, our FCC licenses are considered indefinite-lived intangibles. These FCC licenses and goodwill are not subject to amortization, but will be tested for impairment at least annually. In accordance with Statement 142, we tested our FCC licenses for impairment as of January 1, 2002 by comparing their fair value to their carrying value at that date. The test resulted in no impairment. We used the income approach to value FCC licenses, which involved estimating future cash flows expected to be generated from the licenses, discounted to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value. In estimating future cash flows, we took into account the economic slow down in the radio industry at the end of 2001. Statement 142 requires us to test goodwill for impairment using a two-step process. The first step is a screen for potential impairment, while the second step measures the amount of impairment. We completed the two-step impairment test during the first quarter of 2002. As a result of this test, we recognized no impairment. Consistent with our approach to valuation of FCC licenses, the income approach was used to determine the fair value of each of our reporting units. Our reporting units are the individual markets in which our radio and outdoor advertising businesses operate.

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6.    ACCRUED EXPENSES

Accrued expenses consist of the following:

7.    COMMITMENTS AND CONTINGENCIES

As of June 30, 2002, we had $1.2 million in letters of credit outstanding as deposits to secure obligations including asset purchase agreements.

From time to time, we are subject to routine litigation incident to our business. Management does not believe that these matters will have a material adverse effect upon our liquidity, results of operations or financial position.

8.    DEBT AND EQUITY COMMITMENT

As of August 14, 2002, there are no borrowings outstanding under our $100.0 million senior credit facility and no amounts are available for borrowing.

In January 2002, we entered into two interest rate swap agreements with an aggregate notional amount of $75.0 million. Pursuant to the swap arrangements, we will pay interest on the notional amount at a floating rate based on LIBOR and we will receive a fixed rate of 10.75% on the notional amount until the expiration of the agreements in January 2004. For every 0.5 % increase in interest rates, we would experience an increase of approximately $375,000 in annual interest expense and, to the extent that the three month LIBOR plus 7.3% exceeds 10.75% in the future, we would be required to pay amounts in excess of the fixed payments we receive under the swap arrangements. During the three months ended June 30, 2002, we recorded a non-cash gain of approximately $1.6 million to record our swap arrangements at fair value.

As of August 14, 2002, we had $55.0 million of committed but undrawn private equity funds available.

9.    SEGMENT DATA

Our business consists of two out-of-home media divisions: radio broadcasting and outdoor advertising.

The radio broadcasting segment is comprised of radio stations and networks for which we are the licensee or for which we program and sell on-air advertising time under local marketing agreements. At June 30, 2002, the radio broadcasting segment owned and operated 51 radio stations and one unwired sales network.

The outdoor advertising segment includes traditional outdoor advertising displays, such as roadside bulletins, posters and transit displays that we own or operate under lease arrangements, as well as advertising displays that we install in public locations, including restaurants, health clubs, retail stores and entertainment venues. At June 30, 2002, the outdoor advertising segment owned or operated approximately 29,000 indoor advertising display faces and approximately 4,200 outdoor billboard displays.

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The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 of the registration statement. There are no intersegment sales or transfers.

There are no customers who accounted for more than 10% of our consolidated revenues for the six months ended June 30, 2002 or 2001.

Although broadcast cashflow (BCF) is not a measure of performance calculated in accordance with generally accepted accounting principles, we believe it is useful in evaluating our operating performance and comparing us to other companies in our business who report similar measures. BCF consists of operating income before local marketing agreement fees, depreciation and amortization and corporate expenses.

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10.  SUPPLEMENTAL GUARANTOR INFORMATION

Our senior subordinated notes are guaranteed on a senior subordinated basis, jointly and severally, by all of our subsidiaries (the “Guarantor Subsidiaries”). We have collateralized the revolving credit facility by granting a first priority-perfected pledge of our assets including, without limitation, the capital stock of NextMedia Operating, Inc. and our subsidiaries.

NextMedia Operating, Inc.
Supplemental Combining Balance Sheet
As of June 30, 2002
(in thousands)

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NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Three Months Ended June 30, 2002
(in thousands)

NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Three Months Ended June 30, 2001
(in thousands)

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NextMedia Operating, Inc.
Supplemental Combining Statement of Operations
For the Six Months Ended June 30, 2002
(in thousands)