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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 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 November 12, 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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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)

(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. 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. The Company has accounted for the transaction as a business combination in accordance with SFAS 141 at fair value. 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 senior 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 second quarter of 2004.

The Company has accounted for the New Jersey exchange 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 agreement, both parties remain liable for the loss or unfavorable change in lease costs of all site leases disposed of by them or a breach of representation with respect to such site leases for a period of four months from June 30, 2004. The Company is currently assessing whether any such claims exist. Additionally, for a period of one year from June 30, 2004, the parties remain liable for the loss based on non-renewal or unfavorable change in terms of all site leases disposed of by them which expire during the one year period or the loss of advertising structures not properly located on such site leases. To the extent a claim for indemnification is made for site leases meeting any of the foregoing criteria, each party will be required to do one of the following: 1) make cash payments equivalent to a multiple of the loss of cash flow for the lost sites, 2) substitute additional outdoor advertising assets with cash flow equivalent to that

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

of the lost sites, or 3) reduce the payments under site leases between the parties by an amount equal to the loss of 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 September 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 September 30, 2004, the substantial majority of these amounts have been paid.

During the third quarter, the Company entered into agreements to acquire five radio stations in Wilmington, North Carolina for $24,500 in cash. In addition, the Company simultaneously entered into a local marketing agreement (“LMA”) with respect to the stations to be acquired. The Company believes that when it simultaneously enters into LMA agreements and acquisition agreements with respect to a group of assets, it creates a variable interest in the entities which own the assets to be acquired. Pursuant to FIN 46, under certain circumstances, these variable interest entities (“VIEs”) would be consolidated in the financial statements of the Company. However, since the Wilmington assets subject to the LMA and acquisition agreements do not constitute over 50% of the VIEs’ ongoing activities, the Company has not consolidated the VIE into its financial statements. The Company is awaiting certain changes to the terms of the related agreements which will facilitate FCC approval of the acquisition. Upon the completion of these revised agreements, the Company may be required to consolidate these assets prior to its completion which is expected in the first quarter of 2005. The Company expects to fund the closing of the acquisition with $24,500 of additional borrowings under its senior credit facility.

The results of operations of the assets acquired during the three and nine months ended September 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 nine months ended September 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 nine months ended September 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.

3. Property and Equipment

Property and equipment consist of the following:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

4. Intangible Assets

Intangible assets consist of the following:

In the third Quarter of 2004, as a result of deteriorating business conditions and performance below management expectations, the Company conducted an impairment evaluation of its alternative advertising market and related goodwill and identifiable intangible assets pursuant to SFAS No. 142. As a result of this evaluation, the Company recorded a $16,999 non-cash impairment loss on goodwill related to this market. The non-cash impairment was caused primarily by deteriorating business conditions, which affected market revenue and expenses. These weak market conditions adversely affected the cash flow projections used to determine the fair value of the market and resulted in the non-cash impairment.

The aggregate change in goodwill from December 31, 2003 to September 30, 2004 resulted mainly from the Company’s third quarter impairment charge of $16,999 related to its alternative display market. The remaining change in goodwill resulted from the net effect of (i) an increase of $1,804 related to the acquisition of WZCH-FM and (ii) a net decrease of $6,448 related to the Company’s asset exchanges in the first and second quarter.

The aggregate change in FCC licenses from December 31, 2003 to September 30, 2004 resulted entirely from the Company’s acquisition of radio assets during that period. The aggregate reduction in easements resulted from the net effect of the Company’s asset exchanges completed during the period. The exchanges also resulted in a net reduction of advertising permits of $34,459 offset by an increase of $1,832 related to several small outdoor acquisitions.

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 existing customer bases which are amortized over the respective estimated lives of the assets. Total amortization expense from definite-lived intangible assets for the nine months ended September 30, 2004 was approximately $4,928. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

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:

5. Accrued Expenses

Accrued expenses consist of the following:

6. 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 which matures five years from the date thereof. 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 September 30, 2004, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of September 30, 2004, the Company had approximately $43,000 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

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 September 30, 2004, the Company was in compliance with these covenants.

7. Commitments and Contingencies

As of November 12, 2004, the Company had $1,292 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.

The Company has certain contingencies related to the asset exchange completed in June 2004 as more fully explained in Note 3.

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.

8. 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. For the nine months ended September 30, 2004, the Company has recorded approximately $8,887 of deferred tax expense offset by $6,664 of deferred tax benefit related to the third quarter impairment loss and $3,359 of net deferred tax benefit related to its asset exchanges in the first and second quarters of 2004.

9. 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 September 30, 2004, the radio broadcasting segment included 66 radio stations owned or operated by the Company. All of these stations operate in domestic markets.

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 September 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)

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)

NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

December 31, 2003