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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

OR

For the transition period from              to             

Commission file number: 333-84416

NextMedia Operating, Inc.

(Exact name of registrant as specified in its charter)

(303) 694-9118

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The total number of shares of common stock, par value $.01 per share, outstanding as of August 13, 2004 was 3,000. The Registrant has no other class of common stock outstanding.

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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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)

(Dollars in thousands)

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 for interim financial information. Management believes that the Company has 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 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, 2004, due to seasonality and other factors. You should read the consolidated financial statements in conjunction with the consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2004. In this quarterly report on Form 10-Q, references to “the Company,” “we,” “our” and “us” refer to NextMedia Operating, Inc. and its subsidiaries, and the term “NextMedia” refers only to NextMedia Operating, Inc.

The balances of certain prior periods have been reclassified to conform to the current period’s presentation.

2. Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,”. FIN 46 must be applied to interests in variable interest entities created before February 1, 2003 beginning in the first interim or annual period beginning after March 15, 2004. For variable interest entities created after February 1, 2003, FIN 46 is effective for the first interim period after December 31, 2003. The adoption of FIN 46 has not had a material impact on our financial statements.

3. Acquisitions and Dispositions

Part of the Company’s operating strategy is to expand through prudent acquisition of broadcasting and outdoor advertising properties. The Company acquired each of the advertising assets identified below to help achieve this objective. In seeking acquisition opportunities, the Company generally seeks: (i) assets in markets with a demographic propensity for growth (i.e., population growth above average, above average growth in retail sales, etc.), (ii) markets where the Company believes it can assemble a group of assets generating over $1,000 in annual cash flow from operations, and (iii) assets in markets where the Company believes it can become a leader in terms of ratings, revenue share, or number of advertising faces. Each of the acquisitions below meet at least one of these criteria.

In January 2004, in exchange for its outdoor advertising assets in New York, New York and Baltimore, Maryland, the Company acquired outdoor advertising assets in Myrtle Beach, South Carolina valued at $43,600 resulting in a gain of approximately $1,834. As a result of the exchange, certain of the Company’s taxable temporary differences reversed resulting in a $3,800 income tax benefit during the first quarter of 2004. This benefit was offset by $3,100 of tax expense related to other activity in the quarter and the Company’s projected tax expense for the year. Because the Company does not expect that its deferred tax liabilities will reverse within its net operating loss carry-forward period, the Company records additional deferred tax expense throughout the year to establish a valuation allowance against net operating loss carry-forwards generated by amortization of goodwill and indefinite lived intangibles that is deductible for tax purposes but is not amortized for book purposes.

In February 2004, the Company completed its previously announced acquisition of WCCQ-FM licensed to Crest Hill, Illinois for $14,000 in cash. The Company funded the acquisition with borrowings under its credit facility.

In May 2004, the Company completed the previously announced acquisition of WZCH-FM licensed to Dundee, Illinois, a suburb of Chicago, for $5,000. The Company funded the acquisition with cash borrowed under its senior credit facility.

In June 2004, in exchange for its outdoor advertising assets in New Jersey, the Company acquired outdoor advertising assets in New Haven, Connecticut and Northern Colorado/Wyoming valued at approximately $40,000. As a result of the exchange, certain of the Company’s taxable temporary differences reversed resulting in a $397 income tax expense during the first quarter of 2004.

The Company has accounted for the transaction as a business combination in accordance with SFAS No. 141 at fair value resulting in a gain of approximately $1,000 on the disposition of its assets in New Jersey. Under the terms of the exchange

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

agreement, both parties remain liable for the loss or unfavorable change in terms of all site leases disposed by them for a period of four months from June 30, 2004. Additionally, for a period of one year from June 30, 2004, the parties remain liable for the loss or unfavorable change in terms of all site leases disposed by them which expire during the one year period. To the extent a claim for indemnification is made for site leases meeting the foregoing criteria, each party will be required to either 1) make cash payments equivalent to the fair market value of the lost sites, 2) substitute additional outdoor advertising assets with fair market value equivalent to that of the lost sites, or 3) make annual cash payments equal to the annual cash flow of the lost sites. As a result of the contingencies related to the transferred site leases, the Company has deferred the recognition of the $1,000 gain until such time as the contingency is resolved. This deferred gain is included in other current liabilities in the consolidated balance sheet as of June 30, 2004. The purchase allocation is preliminary pending finalization of the estimated fair values of the acquired assets.

The Company has accrued exit costs of $850 in connection with the disposal of its New Jersey market pursuant to the asset exchange and reduced the deferred gain by this amount. Employee severance comprised $709 of this amount with the remainder related primarily to lease buyouts. As of June 30, 2004, none of these amounts have been paid.

Due to the foregoing acquisitions, the Company recorded approximately $6,852 of additional goodwill which was offset by reduction of $11,168 due to the Company’s disposition.

The results of operations of the assets acquired during the three and six months ended June 30, 2004 have been included in the Company’s income statement from the completion date of the applicable acquisition. The results of operations of assets sold during the three and six months ended June 30, 2004 have been excluded from the Company’s income statement from the completion date of the applicable sale.

The following unaudited pro forma income statement information has been prepared as if the acquisitions made during the year ended December 31, 2003 and the six months ended June 30, 2004 had occurred on January 1, 2003. The pro forma income statement information is not necessarily indicative of the results that actually would have occurred if these acquisitions had been consummated on January 1, 2003.

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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

4. Property and Equipment

Property and equipment consist of the following:

5. Intangible Assets

Intangible assets consist of the following:

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(UNAUDITED)

(Dollars in thousands)

The aggregate change in goodwill, advertising permits, easements and FCC licenses in the period from December 31, 2003 to June 30, 2004 resulted entirely from the Company’s acquisitions and dispositions of radio and outdoor assets. There were no impairment losses recognized during the period and no reporting units were disposed of.

Definite lived Intangible Assets

The Company has definite-lived intangible assets recorded that continue to be amortized in accordance with SFAS 142. These assets consist primarily of non-compete agreements and customer base which are amortized over the respective estimated lives of the assets. Total amortization expense from definite-lived intangible assets for the six months ended June 30, 2004 was approximately $3,010. The following table presents management’s estimate of amortization expense for each of the five succeeding fiscal years for definite-lived intangibles as of the dates indicated. The most significant definite-lived intangible assets acquired by the Company are existing customer bases which have relatively short useful lives due to customer turnover. Consequently, the Company applies an accelerated amortization methodology to these assets.

6. Accrued Expenses

Accrued expenses consist of the following:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

7. Long-Term Debt

Long-term debt consists of the following:

On April 9, 2004, the Company terminated its existing senior credit facility and entered into a new $75,000 senior credit facility maturing in five years. The Company’s new senior credit facility contains customary restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above specified limits. Under the new senior credit facility, the Company must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash interest expense. As of June 30, 2004, the Company was in compliance with all these covenants. After taking into account these restrictive covenants, as of June 30, 2004, the Company had approximately $38,000 of borrowing capacity under its senior credit facility. As a result of the termination of its former credit facility, the Company recorded a charge of $1,541 in the second quarter of 2004 to write off the associated deferred financing costs.

The Company’s 10.75% senior subordinated notes due 2011 require the Company to make semi-annual interest payments of approximately $10,800 on January 1 and July 1 of each year. Since the Company made its July 1, 2004 interest payment on June 30, 2004, there was no accrued interest on the bonds at June 30, 2004. The indenture governing the notes contains certain restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness and pay dividends. As of June 30, 2004, the Company was in compliance with these covenants.

8. Commitments and Contingencies

As of July 10, 2004, the Company had $354 in letters of credit outstanding as deposits to secure obligations.

In March 2004, the arbitration panel on the Company’s previously disclosed dispute with PNE Media, LLC delivered an award that was favorable to the Company and, after certain set-offs, resulted in a net recovery of approximately $3,351 and a gain of approximately $2,132, net of legal expenses, which is recorded in other (income) expense in the first quarter of 2004. The arbitration award has been fully implemented.

From time to time, the Company is subject to routine litigation incident to its business. Management does not expect any of these matters to have a material adverse effect upon the Company’s liquidity, results of operations or financial position.

The Company has no direct or indirect guarantees of indebtedness of others.

9. Taxes

The Company has significant amounts of indefinite lived intangible assets which are not amortized for accounting purposes. Accordingly, the Company records additional deferred tax expense throughout the year to establish a valuation allowance against net operating loss carry-forwards generated by amortization of these indefinite lived intangibles for tax purposes. The Company records the valuation allowance as we continue to expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period.

10. Segment Data

The Company has determined that two reportable operating segments—radio broadcasting and outdoor advertising—best reflect the Company’s current management and operations.

The radio broadcasting segment is comprised of radio stations and networks for which the Company is the licensee or for which the Company programs and sells on-air advertising time under local marketing agreements. At June 30, 2004, the radio broadcasting segment included 61 radio stations owned and operated by the Company. All of these stations operate in domestic markets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

The outdoor advertising segment includes traditional outdoor advertising displays, such as roadside bulletins, posters and transit displays that the Company owns or operates under lease arrangements, as well as advertising displays that the Company installs in public locations, including restaurants, health clubs, retail stores and entertainment venues. At June 30, 2004, the outdoor advertising segment owned or operated over 5,000 outdoor displays and indoor advertising display faces in more than 3,000 retail locations across the United States. All of these displays are located in domestic markets.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 to the Company’s audited consolidated financial statements contained in the Company’s annual report on Form 10-K as filed with the SEC on March 30, 2004. There are no intersegment sales or transfers.

There are no customers that comprise greater than 10% of the consolidated revenues or receivables of the Company for the periods presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

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(UNAUDITED)

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10. Supplemental Guarantor Information

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

NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

December 31, 2003

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

June 30, 2004