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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

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FORM 10-Q

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(Mark One)

| | x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ---------------------------------------------------------------------------------------

| |  | For the quarterly period ended September 30, 2002
| |  | -------------------------------------------------

OR

| | o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ----------------------------------------------------------------------------------------

| |  | For the transition period fromto
| |  | --------------------------------

Commission file number

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NextMedia Operating, Inc.(Exact name of registrant as specified in its charter)

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| | Delaware(State or other jurisdiction ofincorporation or organization) |  | 84-154397(IRS EmployerIdentification No.) | 
| | --------------------------------------------------------------------- |  | ----------------------------------------- | 

| | 6312 S. Fiddlers Green Circle, Suite 360EEnglewood Colorado(Address of principal executive
offices) |  | 80111(Zip Code) | 
| | --------------------------------------------------------------------------------------------------- |  | --------------- | 

(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 o

The total number of shares of common stock, par value $.01 per share, outstanding as of November 13, 2002 was 3,000. The Registrant has no other class of common stock outstanding.

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TABLE OF CONTENTS

|        |  |         |  |                                                                                                              |   
|------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------ | --
|PART I  |  |         | 
|        |  |         |  |                                                                                                              |   
|        |  | Item 1. |  | Unaudited Financial Statements                                                                               |   
|        |  |         |  |                                                                                                              |   
|        |  |         |  | Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002                                   | 3 
|        |  |         |  |                                                                                                              |   
|        |  |         |  | Consolidated Statements of Operations for the three months and nine months ended September 30, 2001 and 2002 | 4 
|        |  |         |  |                                                                                                              |   
|        |  |         |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2002                  | 5 
|        |  |         |  |                                                                                                              |   
|        |  |         |  | Notes to Consolidated Financial Statements                                                                   | 6 
|        |  |         |  |                                                                                                              |   
|        |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        | 15
|        |  |         |  |                                                                                                              |   
|        |  | Item 3. |  | Quantitative and Qualitative Disclosure About Market Risk                                                    | 22
|        |  |         |  |                                                                                                              |   
|        |  | Item 4. |  | Controls and Procedures                                                                                      | 23
|        |  |         |  |                                                                                                              |   
|PART II |  |         | 
|        |  |         |  |                                                                                                              |   
|        |  | Item 1. |  | Legal Proceedings                                                                                            | 24
|        |  |         |  |                                                                                                              |   
|        |  | Item 2. |  | Changes in Securities                                                                                        | 24
|        |  |         |  |                                                                                                              |   
|        |  | Item 3. |  | Defaults Upon Senior Securities                                                                              | 24
|        |  |         |  |                                                                                                              |   
|        |  | Item 4. |  | Submission of Matters of a Vote of Security Holders                                                          | 24
|        |  |         |  |                                                                                                              |   
|        |  | Item 5. |  | Other Information                                                                                            | 24
|        |  |         |  |                                                                                                              |   
|        |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                             | 24



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NEXTMEDIA OPERATING, INC. and SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(unaudited)

|                                                                                                                                               |  | December 31,2001 |         | September 30,2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- | -
|                                                                                                                                               |  |                  |         |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Assets                                                                                                                                         |  |                  |         |                   |  
|Current assets:                                                                                                                                |  |                  |         |                   |  
|Cash and cash equivalents                                                                                                                      |  | $                | 30,501  |                   | $
|Accounts receivable, less allowance for doubtful accounts of $1,209 at        December 31, 2001 and $1,194 at September 30, 2002,
respectively |  |                  | 13,604  |                   |  
|Prepaid expenses and other current assets                                                                                                      |  |                  | 2,129   |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Total current assets                                                                                                                           |  |                  | 46,234  |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Property and equipment, net                                                                                                                    |  |                  | 40,844  |                   |  
|Other assets                                                                                                                                   |  |                  | 10,576  |                   |  
|Other intangibles, net                                                                                                                         |  |                  | 1,169   |                   |  
|Goodwill, net                                                                                                                                  |  |                  | 148,297 |                   |  
|FCC licenses, net                                                                                                                              |  |                  | 252,544 |                   |  
|Assets held for sale                                                                                                                           |  |                  |        |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Total assets                                                                                                                                   |  | $                | 499,664 |                   | $
|                                                                                                                                               |  |                  |         |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Liabilities and stockholders equity                                                                                                           |  |                  |         |                   |  
|Current liabilities:                                                                                                                           |  |                  |         |                   |  
|Accounts payable                                                                                                                               |  | $                | 2,284   |                   | $
|Accrued expenses                                                                                                                               |  |                  | 15,116  |                   |  
|Deferred revenue                                                                                                                               |  |                  | 676     |                   |  
|Other current liabilities                                                                                                                      |  |                  | 9       |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Total current liabilities                                                                                                                      |  |                  | 18,085  |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Long-term debt                                                                                                                                 |  |                  | 197,102 |                   |  
|Deferred tax liability (Note 2)                                                                                                                |  |                  |        |                   |  
|Other long-term liabilities                                                                                                                    |  |                  | 1,846   |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Total liabilities                                                                                                                              |  |                  | 217,033 |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Commitments and contingencies (Note 7)                                                                                                         |  |                  |         |                   |  
|Common stock, $0.01 par value; 3,000 shares authorized; 3,000 and 3,000 shares     issued and outstanding, respectively                        |  |                  | 1       |                   |  
|Additional paid-in capital                                                                                                                     |  |                  | 297,244 |                   |  
|Accumulated deficit                                                                                                                            |  |                  | (14,614 | )                 |  
|                                                                                                                                               |  |                  |         |                   |  
|Total stockholders equity                                                                                                                     |  |                  | 282,631 |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|                                                                                                                                               |  |                  |         |                   |  
|Total liabilities and stockholders equity                                                                                                     |  | $                | 499,664 |                   | $
|                                                                                                                                               |  |                  |         |                   |  

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



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

|                                                                                                                                    |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | -
|                                                                                                                                    |  |                                 |        |                                |  
|                                                                                                                                    |  | 2001                            |        | 2002                           |  
|                                                                                                                                    |  |                                 |        |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Gross revenue                                                                                                                       |  | $                               | 21,610 |                                | $
|Less: agency commissions                                                                                                            |  |                                 | 1,538  |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Net revenue                                                                                                                         |  |                                 | 20,072 |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Operating expenses                                                                                                                  |  |                                 | 12,645 |                                |  
|Corporate expenses                                                                                                                  |  |                                 | 2,154  |                                |  
|Depreciation and amortization                                                                                                       |  |                                 | 3,322  |                                |  
|Local marketing agreement fees                                                                                                      |  |                                 | 5      |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Total operating expenses                                                                                                            |  |                                 | 18,126 |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Operating income                                                                                                                    |  |                                 | 1,946  |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Other income (expense):                                                                                                             |  |                                 |        |                                |  
|Interest expense, net                                                                                                               |  |                                 | (5,560 | )                              |  
|Other income (expense)                                                                                                              |  |                                 |       |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|                                                                                                                                    |  |                                 |        |                                |  
|Income (loss) from continuing operations before income taxes                                                                        |  |                                 | (3,614 | )                              |  
|Provision for income taxes                                                                                                          |  |                                 | (45    | )                              |  
|                                                                                                                                    |  |                                 |        |                                |  
|Loss from continuing operations                                                                                                     |  |                                 | (3,659 | )                              |  
|Discontinued operations (note 3):                                                                                                   |  |                                 |        |                                |  
|Loss from discontinued operations (including loss on        disposal of $3,272 for the nine months ended
       September 30, 2002) |  |                                 | (187   | )                              |  
|                                                                                                                                    |  |                                 |        |                                |  
|Net loss                                                                                                                            |  | $                               | (3,846 | )                              | $
|                                                                                                                                    |  |                                 |        |                                |  

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



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

|                                                                            |  | Nine Months EndedSeptember 30, |         
|--------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                            |  |                                |         
|                                                                            |  | 2001                           |         
|                                                                            |  |                                |         
|Cash flows from operating activities:                                       |  |                                |         
|Net loss                                                                    |  | $                              | (7,581  
|                                                                            |  |                                |         
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |         
|Depreciation and amortization                                               |  |                                | 9,132   
|Non-cash compensation                                                       |  |                                |        
|Provision for bad debt                                                      |  |                                | 347     
|Non-cash interest expense                                                   |  |                                | 125     
|Unrealized (gain)/loss on interest rate swaps                               |  |                                |        
|Provision for deferred taxes                                                |  |                                |        
|Loss on pending sale and other dispositions                                 |  |                                |        
|Changes in assets and liabilities, net of effects of acquisitions:          |  |                                |         
|Deferred Revenue                                                            |  |                                | 396     
|Accounts receivable                                                         |  |                                | (2,257  
|Prepaid expenses and other assets                                           |  |                                | (1,019  
|Accounts payable and accrued expenses                                       |  |                                | 4,354   
|                                                                            |  |                                |         
|Net cash provided by (used in) operating activities                         |  |                                | 3,497   
|                                                                            |  |                                |         
|Cash flows from investing activities:                                       |  |                                |         
|Acquisitions, net of cash acquired                                          |  |                                | (118,460
|Proceeds from sale of assets                                                |  |                                | 1,583   
|Purchase of short-term investments                                          |  |                                |        
|Sale of short-term investments                                              |  |                                |        
|Capital expenditures                                                        |  |                                | (5,395  
|                                                                            |  |                                |         
|Net cash used in investing activities                                       |  |                                | (122,272
|                                                                            |  |                                |         
|Cash flows from financing activities:                                       |  |                                |         
|Bond proceeds, net                                                          |  |                                | 188,746 
|Proceeds from senior credit facilities                                      |  |                                | 18,000  
|Payments on senior credit facilities                                        |  |                                | (124,949
|Payments of financing costs                                                 |  |                                |        
|Capital contributions from Parent                                           |  |                                | 65,356  
|Other                                                                       |  |                                | 379     
|Change in seller working capital                                            |  |                                | (622    
|                                                                            |  |                                |         
|                                                                            |  |                                |         
|Net cash provided by financing activities                                   |  |                                | 146,910 
|Net increase (decrease) in cash                                             |  |                                | 28,135  
|Cash and cash equivalent at beginning of period                             |  |                                | 836     
|                                                                            |  |                                |         
|Cash and cash equivalents at end of period                                  |  | $                              | 28,971  
|                                                                            |  |                                |         
|                                                                            |  |                                |         
|Supplemental Cash Flow Information:                                         |  |                                |         
|Cash payments during the period for interest                                |  | $                              | 5,830   
|                                                                            |  |                                |         
|Non-cash capital contribution in the form of outdoor advertising assets     |  | $                              | 31,700  
|                                                                            |  |                                |         

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



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NEXTMEDIA OPERATING, INC. and SUBSIDIARIESNOTES 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 $11.4 million to establish a valuation allowance against net operating loss carry-forwards generated
during the nine months ended September 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 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



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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 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 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 nine month periods ended September 30, 2002, these assets generated net
revenues of approximately $66,000 and $736,000, respectively, and pre-tax losses of $187,000 and $201,000, respectively. Management decided to sell these assets because we believe there are alternative uses of capital which may provide a higher
return on investment.

During the third quarter of 2002, we acquired the assets of Flack Outdoor Advertising, Inc. for $24.9 million, excluding acquisition costs. As a result of the acquisition, we acquired over
1,600 outdoor displays located primarily in the Northern Colorado, Wyoming and Missouri markets. Also in the third quarter of 2002, we acquired outdoor advertising assets in several other transactions with an aggregate purchase price of
approximately $4.0 million.

With the exception of Flack Outdoor Advertising, Inc., each of the foregoing acquisitions were asset purchases. The assets of Flack Outdoor Advertising, Inc. were contributed to a
newly formed entity, NextMedia of Northern Colorado, Inc. We acquired 100% of the common stock of the this entity.

Each of the acquisitions was consummated as part of our ongoing strategy of growth through
acquisition and consolidation of radio broadcasting and outdoor advertising assets. The accounting for these acquisitions resulted in a significant portion of the purchase price being allocated to goodwill because the value of the businesses
acquired significantly exceeded the value of the tangible and identifiable intangible assets. The results of operations of these acquisitions are included in our operating results from the date each acquisition was consummated. All of the
acquisitions were funded with cash on hand or cash contributed by private investment funds.

In August  2002, we entered into an agreement to purchase three FM stations and one AM station in the
Sherman/Dennison, Texas and Ardmore, Oklahoma television markets for $5.5 million. To secure our obligations under the agreement, we provided a $275,000 letter of credit. Also, in October 2002, we entered into an agreement to purchase four FM
stations and one AM station in the Saginaw/Bay City/Midland, Michigan market from Wilks Broadcasting, LLC for $55.5 million. To secure our obligations under the agreement, we provided a $5.6 million letter of credit. We expect to close the
acquisitions in the first quarter of 2003 utilizing cash generated from operations, private equity contributions and borrowings under our credit facility.



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4.      PROPERTY AND EQUIPMENT

Property and equipment consist of
the following:

|                              |  | DepreciableLife |        | December 31,2001 |   | September 30,2002 |  
|----------------------------- |  | --------------- | ------ | ---------------- | - | ----------------- | -
|                              |  |                 |        |                  |   |                   |  
|                              |  |                 |        | (in thousands)   |  
|Land and improvements         |  |                 |       |                  | $ | 5,161             |  
|Construction in progress      |  |                 |       |                  |   | 376               |  
|Buildings                     |  |                 | 20     |                  |   | 7,927             |  
|Leasehold improvements        |  |                 | 10     |                  |   | 1,779             |  
|Broadcast equipment           |  |                 | 5  20 |                  |   | 6,757             |  
|Office equipment              |  |                 | 7      |                  |   | 2,106             |  
|Computer software and systems |  |                 | 3  5  |                  |   | 951               |  
|Tower and antennae            |  |                 | 5  20 |                  |   | 3,189             |  
|Vehicles                      |  |                 | 3      |                  |   | 988               |  
|Furniture and fixtures        |  |                 | 7      |                  |   | 1,175             |  
|Advertising structures        |  |                 | 3  15 |                  |   | 15,055            |  
|                              |  |                 |        |                  |   |                   |  
|                              |  |                 |        |                  |   | 45,464            |  
|Less accumulated depreciation |  |                 |        |                  |   | (4,620            | )
|                              |  |                 |        |                  |   |                   |  
|                              |  |                 |        |                  | $ | 40,844            |  
|                              |  |                 |        |                  |   |                   |  

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 nine months ended September 30, 2001:

|                                   |  | Nine Months EndedSeptember 30, 2001 |       
|---------------------------------- |  | ----------------------------------- | ------
|                                   |  |                                     |       
|                                   |  | (in thousands)                      |       
|                                   |  |                                     |       
|Reported Net Loss                  |  | $                                   | (7,581
|Add Back: Goodwill Amortization    |  |                                     | 674   
|Add Back: FCC License Amortization |  |                                     | 4,822 
|Tax Impact                         |  |                                     | (7,161
|                                   |  |                                     |       
|Adjusted Net Loss                  |  | $                                   | (9,246
|                                   |  |                                     |       

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 assets (in
thousands):

|                       |  | December 31, 2001    |       | September 30, 2002      |  
|---------------------- |  | -------------------- | ----- | ----------------------- | -
|                       |  |                      |       |                         |  
|                       |  | Gross CarryingAmount |       | AccumulatedAmortization |  
|                       |  |                      |       |                         |  
|Non-compete agreements |  | $                    | 1,872 |                         | $
|Other                  |  |                      | 99    |                         |  
|                       |  |                      |       |                         |  
|                       |  | $                    | 1,971 |                         | $
|                       |  |                      |       |                         |  





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Total amortization expense from definite-lived intangibles for the nine months ended September 30, 2002 and for the year ended December 31, 2001 was
approximately $436,000 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:

|     |  | (in thousands) |    
|---- |  | -------------- | ---
|     |  |                |    
|2003 |  | $              | 501
|2004 |  |                |   
|2005 |  |                |   
|2006 |  |                |   
|2007 |  |                |   

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.

6.      ACCRUED EXPENSES

Accrued expenses consist of the following:

|                                 |  | December 31,2001 |        | September 30,2002 |  
|-------------------------------- |  | ---------------- | ------ | ----------------- | -
|                                 |  |                  |        |                   |  
|                                 |  | (in thousands)   |       
|Accrued compensation and bonuses |  | $                | 980    |                   | $
|Accrued commissions              |  |                  | 444    |                   |  
|Accrued interest                 |  |                  | 10,511 |                   |  
|Accrued property taxes           |  |                  | 336    |                   |  
|Accrued franchise taxes          |  |                  | 725    |                   |  
|Accrued rent                     |  |                  | 931    |                   |  
|Other                            |  |                  | 1,189  |                   |  
|                                 |  |                  |        |                   |  
|                                 |  | $                | 15,116 |                   | $
|                                 |  |                  |        |                   |  





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7.      COMMITMENTS AND CONTINGENCIES

As of September 30,
2002, we had $1.5 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 expect these matters to have a material adverse effect upon our liquidity, results of operations or financial position.

8.      DEBT AND EQUITY COMMITMENTS

Subsequent to the third quarter, we amended our $100.0 million credit facility. As a result of the amendment: (i) in the event that we do not utilize the facility, we
will not be required to comply with the maximum total leverage ratio until July 1, 2003; (ii) the commitments under the facility have been reduced from $100.0 million to $75.0 million; and (iii) certain financial covenants related to
senior leverage, total leverage and interest coverage have been relaxed. The amended facility contains customary restrictive covenants that, among other things, limit our ability to incur additional indebtedness and liens in connection therewith,
pay dividends and make capital expenditures above specified limits. Under the credit facility, we must satisfy specified financial covenants, such as a maximum leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash
interest expense. As of September 30, 2002, we were in compliance with all these covenants. As of October 31, 2002, no amounts were available for borrowing under the facility.

Except for the amendments in
clause (i) above, which has already become effective, the foregoing amendments will not become effective until at least $65.0 million of a $75.0 million private equity commitment has been funded. As of October 31, 2002, $44.9 million of that
equity commitment has been funded to complete acquisitions. The remaining committed but unfunded amount is $30.1 million.

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 September 30, 2002, we recorded a non-cash gain of approximately $715,000 to record our swap arrangements
at fair value.

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 for which we are the licensee or for which we program and sell on-air advertising time under local marketing
agreements. At September 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 September 30, 2002, the outdoor advertising segment owned or operated approximately 29,000 indoor advertising display faces and over 5,725 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.

No customer accounted for more than 10% of our consolidated revenues for the three or nine months ended September 30, 2002 or 2001.



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##### Table of Contents

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.

|                                                      |  | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30, |  
|----------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------ | -
|                                                      |  |                                 |         |                                |  
|                                                      |  | 2001                            |         | 2002                           |  
|                                                      |  |                                 |         |                                |  
|                                                      |  | (in thousands)                  |        
|Net revenue:                                          |  |                                 |         |                                |  
|Radio Broadcasting                                    |  | $                               | 14,775  |                                | $
|Outdoor Advertising                                   |  |                                 | 5,297   |                                |  
|                                                      |  |                                 |         |                                |  
|Consolidated                                          |  |                                 | 20,072  |                                |  
|                                                      |  |                                 |         |                                |  
|Operating expenses:                                   |  |                                 |         |                                |  
|Radio Broadcasting                                    |  |                                 | 9,464   |                                |  
|Outdoor Advertising                                   |  |                                 | 3,181   |                                |  
|                                                      |  |                                 |         |                                |  
|Consolidated                                          |  |                                 | 12,645  |                                |  
|                                                      |  |                                 |         |                                |  
|BCF:                                                  |  |                                 |         |                                |  
|Radio Broadcasting                                    |  |                                 | 5,311   |                                |  
|Outdoor Advertising                                   |  |                                 | 2,116   |                                |  
|                                                      |  |                                 |         |                                |  
|Consolidated                                          |  |                                 | 7,427   |                                |  
|Corporate expenses                                    |  |                                 | 2,154   |                                |  
|Depreciation and amortization                         |  |                                 | 3,322   |                                |  
|Local marketing agreement fees                        |  |                                 | 5       |                                |  
|                                                      |  |                                 |         |                                |  
|Operating income                                      |  |                                 | 1,946   |                                |  
|Interest expense, net                                 |  |                                 | (5,560  | )                              |  
|Other income                                          |  |                                 |        |                                |  
|                                                      |  |                                 |         |                                |  
|                                                      |  |                                 |         |                                |  
|Income (loss) from continuing operations before taxes |  | $                               | (3,614  | )                              | $
|                                                      |  |                                 |         |                                |  
|Total assets:                                         |  |                                 |         |                                |  
|Radio Broadcasting                                    |  | $                               | 344,501 |                                | $
|Outdoor Advertising                                   |  |                                 | 131,361 |                                |  
|                                                      |  |                                 |         |                                |  
|Consolidated                                          |  | $                               | 475,862 |                                | $
|                                                      |  |                                 |         |                                |  





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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 SheetAs of September 30, 2002(in thousands)

|                                           |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |         
|------------------------------------------ |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | --------
|                                           |  |                          |         |                       |   |                    |   |       |         
|                                           |  |                          |         |                       |   |                    |   |       |         
|Cash                                       |  | $                        | 8,288   |                       | $ | (617               | ) | $     |        
|Accounts Receivable                        |  |                          | 10,083  |                       |   | 3,944              |   |       |        
|Prepaid Assets & Other Current Assets      |  |                          | 719     |                       |   | 1,741              |   |       |        
|                                           |  |                          |         |                       |   |                    |   |       |         
|Total                                      |  |                          | 19,090  |                       |   | 5,068              |   |       |        
|                                           |  |                          |         |                       |   |                    |   |       |         
|Fixed Assets                               |  |                          | 23,703  |                       |   | 23,237             |   |       |        
|Investment in Subsidiaries                 |  |                          | 437,468 |                       |   |                   |   |       | (437,468
|Other Assets                               |  |                          | 13,894  |                       |   | 1,038              |   |       | (1,791  
|FCC Licenses & Other Intangibles           |  |                          | 13,209  |                       |   | 418,738            |   |       |        
|Assets Held For Sale                       |  |                          | 507     |                       |   | 4,924              |   |       |        
|                                           |  |                          |         |                       |   |                    |   |       |         
|Total Assets                               |  | $                        | 507,871 |                       | $ | 453,005            |   | $     | (439,259
|                                           |  |                          |         |                       |   |                    |   |       |         
|                                           |  |                          |         |                       |   |                    |   |       |         
|Accounts Payable                           |  | $                        | 1,563   |                       | $ | 251                |   | $     |        
|Accrued Expenses                           |  |                          | 7,472   |                       |   | 3,019              |   |       |        
|Deferred Revenue                           |  |                          | 68      |                       |   | 722                |   |       |        
|Other Current Liabilities                  |  |                          | 11      |                       |   | 3,025              |   |       | (1,791  
|                                           |  |                          |         |                       |   |                    |   |       |         
|Total Current Liabilities                  |  |                          | 9,114   |                       |   | 7,017              |   |       | (1,791  
|                                           |  |                          |         |                       |   |                    |   |       |         
|Notes Payable                              |  |                          | 197,233 |                       |   |                   |   |       |        
|Other Long Term Liabilities                |  |                          | 20,119  |                       |   | 8,520              |   |       |        
|                                           |  |                          |         |                       |   |                    |   |       |         
|Total Liabilities                          |  |                          | 226,466 |                       |   | 15,537             |   |       | (1,791  
|                                           |  |                          |         |                       |   |                    |   |       |         
|Additional Paid In Capital                 |  |                          | 322,416 |                       |   | 435,343            |   |       | (435,343
|Accumulated Deficit                        |  |                          | (41,011 | )                     |   | 2,125              |   |       | (2,125  
|                                           |  |                          |         |                       |   |                    |   |       |         
|Stockholders Equity                       |  |                          | 281,405 |                       |   | 437,468            |   |       | (437,468
|                                           |  |                          |         |                       |   |                    |   |       |         
|Total Liabilities and Stockholders Equity |  | $                        | 507,871 |                       | $ | 453,005            |   | $     | (439,259
|                                           |  |                          |         |                       |   |                    |   |       |         





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NextMedia Operating, Inc.Supplemental Combining Statement of OperationsFor the Three Months Ended
September 30, 2002(in thousands)

|                                                |  | NextMediaOperating, Inc. |        | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |       
|----------------------------------------------- |  | ------------------------ | ------ | --------------------- | - | ------------------ | - | ----- | ------
|                                                |  |                          |        |                       |   |                    |   |       |       
|                                                |  |                          |        |                       |   |                    |   |       |       
|Net Revenue                                     |  | $                        | 16,761 |                       | $ | 7,105              |   | $     |      
|Total Operating Expenses                        |  |                          | 10,336 |                       |   | 4,759              |   |       |      
|Corporate Expenses                              |  |                          | 1,447  |                       |   | 640                |   |       |      
|Depreciation and Amortization                   |  |                          | 894    |                       |   | 479                |   |       |      
|                                                |  |                          |        |                       |   |                    |   |       |       
|Operating income (loss)                         |  | $                        | 4,084  |                       | $ | 1,227              |   | $     |      
|Interest Expense, net                           |  |                          | (5,638 | )                     |   |                   |   |       |      
|Other Income (Expense)                          |  |                          | 887    |                       |   | (3                 | ) |       |      
|Equity in Earnings (loss) of Subsidiary         |  |                          | 1,224  |                       |   |                   |   |       | (1,224
|                                                |  |                          |        |                       |   |                    |   |       |       
|Income (loss) before provision for income taxes |  |                          | 557    |                       |   | 1,224              |   |       | (1,224
|Income Taxes                                    |  |                          | (1,783 | )                     |   |                   |   |       |      
|                                                |  |                          |        |                       |   |                    |   |       |       
|Net income (loss) from continuing operations    |  | $                        | (1,226 | )                     | $ | 1,224              |   | $     | (1,224
|Loss on discontinued operations                 |  |                          |       |                       |   |                   |   |       |      
|                                                |  |                          |        |                       |   |                    |   |       |       
|Net Income (Loss) after taxes                   |  | $                        | (1,226 | )                     | $ | 1,224              |   | $     | (1,224
|                                                |  |                          |        |                       |   |                    |   |       |       

NextMedia Operating, Inc.Supplemental Combining Statement of OperationsFor the Three Months Ended September 30,
2001(in thousands)

|                                                |  | NextMediaOperating, Inc. |        | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |    
|----------------------------------------------- |  | ------------------------ | ------ | --------------------- | - | ------------------ | - | ----- | ---
|                                                |  |                          |        |                       |   |                    |   |       |    
|                                                |  |                          |        |                       |   |                    |   |       |    
|Net Revenue                                     |  | $                        | 14,775 |                       | $ | 5,297              |   | $     |   
|Total Operating Expenses                        |  |                          | 9,469  |                       |   | 3,181              |   |       |   
|Corporate Expenses                              |  |                          | 1,379  |                       |   | 775                |   |       |   
|Depreciation and Amortization                   |  |                          | 1,157  |                       |   | 2,165              |   |       |   
|                                                |  |                          |        |                       |   |                    |   |       |    
|Operating income (loss)                         |  | $                        | 2,770  |                       | $ | (824               | ) | $     |   
|Interest Expense, net                           |  |                          | (5,560 | )                     |   |                   |   |       |   
|Other Income (Expense)                          |  |                          |       |                       |   |                   |   |       |   
|Equity in Earnings (loss) of Subsidiary         |  |                          | (877   | )                     |   |                   |   |       | 877
|                                                |  |                          |        |                       |   |                    |   |       |    
|Income (loss) before provision for income taxes |  |                          | (3,667 | )                     |   | (824               | ) |       | 877
|Income Taxes                                    |  |                          | (45    | )                     |   |                   |   |       |   
|                                                |  |                          |        |                       |   |                    |   |       |    
|Net income (loss) from continuing operations    |  | $                        | (3,712 | )                     | $ | (824               | ) | $     | 877
|Loss on discontinued operations                 |  |                          | (134   | )                     |   | (53                | ) |       |   
|                                                |  |                          |        |                       |   |                    |   |       |    
|Net Income (Loss) after taxes                   |  | $                        | (3,846 | )                     | $ | (877               | ) | $     | 877
|                                                |  |                          |        |                       |   |                    |   |       |    





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NextMedia Operating, Inc.Supplemental Combining Statement of OperationsFor the Nine Months Ended
September 30, 2002(in thousands)

|                                                |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |      
|----------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | -----
|                                                |  |                          |         |                       |   |                    |   |       |      
|Net Revenue                                     |  | $                        | 46,864  |                       | $ | 19,448             |   | $     |     
|Total Operating Expenses                        |  |                          | 29,409  |                       |   | 14,003             |   |       |     
|Corporate Expenses                              |  |                          | 4,281   |                       |   | 2,135              |   |       |     
|Depreciation and Amortization                   |  |                          | 2,636   |                       |   | 1,291              |   |       |     
|                                                |  |                          |         |                       |   |                    |   |       |      
|Operating income (loss)                         |  | $                        | 10,538  |                       | $ | 2,019              |   | $     |     
|Interest Expense, net                           |  |                          | (16,788 | )                     |   | 3                  |   |       |     
|Other Income (Expense)                          |  |                          | 961     |                       |   | (5                 | ) |       |     
|Equity in Earnings (loss) of Subsidiary         |  |                          | (1,255  | )                     |   |                   |   |       | 1,255
|                                                |  |                          |         |                       |   |                    |   |       |      
|Income (loss) before provision for income taxes |  |                          | (6,544  | )                     |   | 2,017              |   |       | 1,255
|Income Taxes                                    |  |                          | (19,652 | )                     |   |                   |   |       |     
|                                                |  |                          |         |                       |   |                    |   |       |      
|Net income (loss) from continuing operations    |  | $                        | (26,196 | )                     | $ | 2,017              |   | $     | 1,255
|Loss on discontinued operations                 |  |                          | (201    | )                     |   | (3,272             | ) |       |     
|                                                |  |                          |         |                       |   |                    |   |       |      
|Net Income (Loss) after taxes                   |  | $                        | (26,397 | )                     | $ | (1,255             | ) | $     | 1,255
|                                                |  |                          |         |                       |   |                    |   |       |      

NextMedia Operating, Inc.Supplemental Combining Statement of OperationsFor the Nine Months Ended September 30,
2001(in thousands)

|                                                |  | NextMedia Operating, Inc. |         | Guarantor Subsidiaries |   | Eliminating Entries |   | Total |      
|----------------------------------------------- |  | ------------------------- | ------- | ---------------------- | - | ------------------- | - | ----- | -----
|                                                |  |                           |         |                        |   |                     |   |       |      
|Net Revenue                                     |  | $                         | 41,884  |                        | $ | 9,012               |   | $     |     
|Total Operating Expenses                        |  |                           | 27,368  |                        |   | 5,247               |   |       |     
|Corporate Expenses                              |  |                           | 4,045   |                        |   | 2,165               |   |       |     
|Depreciation and Amortization                   |  |                           | 3,319   |                        |   | 5,570               |   |       |     
|Local marketing agreement fees                  |  |                           | 20      |                        |   |                    |   |       |     
|                                                |  |                           |         |                        |   |                     |   |       |      
|Operating income (loss)                         |  | $                         | 7,132   |                        | $ | (3,970              | ) | $     |     
|Interest Expense, net                           |  |                           | (10,140 | )                      |   |                    |   |       |     
|Other Income (Expense)                          |  |                           |        |                        |   |                    |   |       |     
|Equity in Earnings (loss) of Subsidiary         |  |                           | (4,129  | )                      |   |                    |   |       | 4,129
|                                                |  |                           |         |                        |   |                     |   |       |      
|Income (loss) before provision for income taxes |  |                           | (7,137  | )                      |   | (3,970              | ) |       | 4,129
|Income Taxes                                    |  |                           | (135    | )                      |   |                    |   |       |     
|                                                |  |                           |         |                        |   |                     |   |       |      
|Net income (loss) from continuing operations    |  | $                         | (7,272  | )                      | $ | (3,970              | ) | $     | 4,129
|Loss on discontinued operations                 |  |                           | (309    | )                      |   | (159                | ) |       |     
|                                                |  |                           |         |                        |   |                     |   |       |      
|Net Income (Loss) after taxes                   |  | $                         | (7,581  | )                      | $ | (4,129              | ) | $     | 4,129
|                                                |  |                           |         |                        |   |                     |   |       |      





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##### Table of Contents

NextMedia Operating, Inc.Supplemental Combining Statement of Cash FlowsFor the Nine Months Ended
September 30, 2002(in thousands)

|                                          |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |  
|----------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------------------ | - | ----- | -
|                                          |  |                          |         |                       |   |                    |   |       |  
|Net Cash provided by (used in) operations |  | $                        | (10,230 | )                     | $ | 2,490              |   | $     | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|                                          |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Investing Activities      |  |                          |         |                       |   |                    |   |       |  
|Acquisitions, net of cash acquired        |  |                          | (36,826 | )                     |   |                   |   |       | 
|Proceeds from sale of assets              |  |                          | 1,201   |                       |   |                   |   |       | 
|Purchase of short-term investments        |  |                          | (9,478  | )                     |   |                   |   |       | 
|Sale of short-term investments            |  |                          | 9,478   |                       |   |                   |   |       | 
|Capital expenditures                      |  |                          | (1,356  | )                     |   | (2,865             | ) |       | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|Net cash used in investing activities     |  |                          | (36,981 | )                     |   | (2,865             | ) |       | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|                                          |  |                          |         |                       |   |                    |   |       |  
|Cash Flows From Financing Activities      |  |                          |         |                       |   |                    |   |       |  
|Payments of financing costs               |  |                          | (489    | )                     |   |                   |   |       | 
|Capital contributions from Parent         |  |                          | 25,044  |                       |   |                   |   |       | 
|Increase in seller working capital        |  |                          | (20     | )                     |   | 301                |   |       | 
|Other                                     |  |                          | (80     | )                     |   |                   |   |       | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|Net cash used in financing activities     |  |                          | 24,455  |                       |   | 301                |   |       | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|                                          |  |                          |         |                       |   |                    |   |       |  
|Net decrease in cash                      |  |                          | (22,756 | )                     |   | (74                | ) |       | 
|Cash at beginning of period               |  |                          | 31,044  |                       |   | (543               | ) |       | 
|                                          |  |                          |         |                       |   |                    |   |       |  
|Cash at end of period                     |  | $                        | 8,288   |                       | $ | (617               | ) | $     | 
|                                          |  |                          |         |                       |   |                    |   |       |  

NextMedia Operating, Inc.Supplemental Combining Statement of Cash FlowsFor the Nine Months Ended September 30,
2001(in thousands)

|                                          |  | NextMediaOperating, Inc. |          | GuarantorSubsidiaries |   | EliminatingEntries |   | Total |  
|----------------------------------------- |  | ------------------------ | -------- | --------------------- | - | ------------------ | - | ----- | -
|                                          |  |                          |          |                       |   |                    |   |       |  
|Net Cash provided by (used in) operations |  | $                        | 3,538    |                       | $ | (41                | ) | $     | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|                                          |  |                          |          |                       |   |                    |   |       |  
|Cash Flows From Investing Activities      |  |                          |          |                       |   |                    |   |       |  
|Acquisitions, net of cash acquired        |  |                          | (118,460 | )                     |   |                   |   |       | 
|Proceeds from sale of assets              |  |                          | 1,583    |                       |   |                   |   |       | 
|Capital expenditures                      |  |                          | (4,563   | )                     |   | (832               | ) |       | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|Net cash used in investing activities     |  |                          | (121,440 | )                     |   | (832               | ) |       | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|                                          |  |                          |          |                       |   |                    |   |       |  
|Cash Flows From Financing Activities      |  |                          |          |                       |   |                    |   |       |  
|Bond proceeds, net                        |  |                          | 188,799  |                       |   | (53                | ) |       | 
|Proceeds from senior credit facilities    |  |                          | 18,000   |                       |   |                   |   |       | 
|Repayment of senior credit facilities     |  |                          | (124,949 | )                     |   |                   |   |       | 
|Capital contributions from Parent         |  |                          | 65,356   |                       |   |                   |   |       | 
|Other                                     |  |                          | (243     | )                     |   |                   |   |       | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|Net cash used in financing activities     |  |                          | 146,963  |                       |   | (53                | ) |       | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|                                          |  |                          |          |                       |   |                    |   |       |  
|Net decrease in cash                      |  |                          | 29,061   |                       |   | (926               | ) |       | 
|Cash at beginning of period               |  |                          | 325      |                       |   | 511                |   |       | 
|                                          |  |                          |          |                       |   |                    |   |       |  
|Cash at end of period                     |  | $                        | 29,386   |                       | $ | (415               | ) | $     | 
|                                          |  |                          |          |                       |   |                    |   |       |  

16



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion of our consolidated financial condition and results
of operations should be read in conjunction with our consolidated unaudited interim financial statements and related notes thereto included elsewhere in this quarterly report. Our actual results could differ materially from those discussed herein.
This quarterly report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding the intent, belief or current
expectations of our Company, directors and officers primarily with respect to our future operating performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Our actual results
may differ from those in the forward-looking statements as a result of various factors, including without limitation, risks and uncertainties relating to leverage, the need for additional funds, FCC and government approval of future acquisitions,
our inability to renew one or more of our broadcast licenses, inability to renew tower or site leases, changes in interest rates, consummation of our future acquisitions, integration of the future acquisitions, our ability to eliminate certain
costs, our management of rapid growth, the popularity of radio as a broadcasting and advertising medium and changing consumer tastes. Many of these risks and uncertainties are beyond our control and would significantly alter the results set forth in
these statements.

General

Our business consists of two out-of-home media divisions: radio broadcasting and outdoor advertising. Our radio broadcasting business sells
on-air advertising time on radio stations for which we provide programming. Our outdoor advertising business includes traditional outdoor advertising displays, such as bulletins, posters and wall-sides, as well as alternative advertising displays
that we install in public locations, including restaurants, health clubs, retail stores and entertainment venues.

Radio Broadcasting Division

We derive our radio
broadcast revenues primarily from the sale of advertising time to local, regional and national advertisers. Our radio division operating expenses consist primarily of employee salaries and commissions, programming expenses, research, advertising and
promotion expenses, rental for studio premises, rental of transmission tower space and music license royalty fees. We seek to merge these expenses by centralizing certain functions, such as finance, accounting, legal, human resources and management
information systems and the overall programming management function and by requiring adherence to strict cost controls at the station level.

Our radio advertising revenues generally reflect the advertising rates
that our radio stations can charge and the number of advertisements that we can broadcast without jeopardizing listener levels and resulting ratings. We typically base our advertising rates upon demand for a stations advertising inventory and
its ability to attract audiences in targeted demographic groups, as well as by the number of stations competing in the market.

Most of our markets are mid-sized or suburban markets, which typically attract a
larger percentage of advertising revenues from local, rather than national, advertising.

The radio broadcast industry typically experiences seasonal revenue fluctuations due primarily to fluctuations in
advertising expenditures by local and national advertisers, with revenues typically being the lowest in the first calendar quarter and the highest in the second and fourth calendar quarters of each year. A radio stations operating results in
any period also may be affected by advertising and



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promotional expenditures that do not necessarily produce revenues in the period in which the expenditures are made.

During the
second quarter of 2002, we entered into a contract to sell the assets of radio stations WYOO-FM, WPCF-AM, WQJM-FM, WILN-FM and WYYX-FM 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 nine-month periods ended September 30, 2002, these assets generated net revenues of approximately $66,000 and $736,000, respectively. Management decided to sell these assets because we believe there are
alternative uses of capital which may provide a higher return on investment.

Outdoor Advertising Division

We derive our outdoor advertising revenues primarily through
contracts with local and national advertisers. Our outdoor division operating expenses consist primarily of employee salaries and commissions, rental of sites for advertising displays, costs for the installation of advertisements, maintenance and
shipping costs, printing of advertisements and reproduction costs.

Our outdoor advertising revenues reflect advertising rates prevailing in the relevant market, the location of our displays and our available
inventory. We generally base our advertising rates on a particular displays exposure, or number of impressions delivered, in relation to the demographics of the particular market and its location within that market. Our outdoor
advertising display contracts typically have terms ranging from three months to one year.

We estimate the number of impressions delivered by an outdoor display, for example, by estimating the number of
individuals viewing the site during a defined period. We apply a similar formula for determining advertising rates for our other display products. Because roadside bulletin displays and wall-sides are large and generate a higher number of
impressions than other outdoor products, advertising rates for bulletins and wall-sides are significantly higher than those for our other outdoor and alternative display products.

Factors Affecting
Comparability

We commenced operations in late-1999 when we completed our first acquisition. Our results of operations from period to period are not directly comparable because of the impact of the various
acquisitions and dispositions that we have completed as well as our rapid build-up in personnel in anticipation of additional acquisitions. Moreover, our expected growth through acquisitions is likely to continue to limit the comparability of our
results of operations. The following is a summary of our acquisition and disposition activity since December 31, 2001 affecting comparability and should be read in conjunction with our financial statements for the year ended December 31,
2001.

During the first quarter of 2002, we acquired 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 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



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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 nine month periods ended September 30, 2002, these assets generated net revenues of approximately $66,000 and $736,000, respectively, and pre-tax losses of $187,000 and
$201,000, respectively. Management decided to sell these assets because we believe there are alternative uses of capital which may provide a higher return on investment.

During the third quarter of 2002, we
acquired the assets of Flack Outdoor Advertising, Inc. for $24.9 million, excluding acquisition costs. As a result of the acquisition, we acquired over 1,600 outdoor displays located primarily in the Northern Colorado, Wyoming and Missouri markets.
Also in the third quarter of 2002, we acquired outdoor advertising assets in several other transactions with an aggregate purchase price of approximately $4.0 million.

In the following analysis, broadcast cash
flow consists of operating income before local marketing agreement fees, depreciation and amortization and corporate expenses. EBITDA consists of operating income before local marketing agreement fees, depreciation and amortization. Although
broadcast cash flow and EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles, we believe that they are useful to an investor in evaluating our operating performance and comparing us to other
companies in our business who report similar measures. However, you should not consider broadcast cash flow and EBITDA in isolation or as a substitute for operating income, cash flows from operating activities and other income or cash flow statement
data prepared in accordance with generally accepted accounting principles or as a measure of liquidity or profitability. Moreover, the way in which we calculate broadcast cash flow and EBITDA may differ from that of companies reporting
similarly-named measures.

19



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##### Table of Contents

RESULTS OF OPERATIONS

The following tables present certain summary historical financial data for the periods indicated on a consolidated basis
and for each of our out-of-home media divisions (dollars in thousands).

|                                         |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30, | 
|---------------------------------------- |  | ------------------------------- | ------ | ------------------------------ | 
|                                         |  |                                 |        |                                | 
|                                         |  | 2001                            |        | %                              | 
|                                         |  |                                 |        |                                | 
|Consolidated Operating Data:             |  |                                 |        |                                | 
|Net Revenues                             |  | $                               | 20,072 |                                | 
|Operating expenses                       |  |                                 | 12,645 |                                | 
|Corporate expenses                       |  |                                 | 2,154  |                                | 
|Depreciation and         amortization    |  |                                 | 3,322  |                                | 
|Local marketing agreement         fees   |  |                                 | 5      |                                | 
|                                         |  |                                 |        |                                | 
|                                         |  |                                 |        |                                | 
|Operating income                         |  |                                 | 1,946  |                                | 
|Interest and other expense,         net. |  |                                 | (5,560 | )                              | 
|Income tax expense                       |  |                                 | (45    | )                              | 
|Discontinued operations                  |  |                                 | (187   | )                              | 
|                                         |  |                                 |        |                                | 
|Net loss                                 |  | $                               | (3,846 | )                              | 
|                                         |  |                                 |        |                                | 
|                                         |  |                                 |        |                                | 
|Other Data:                              |  |                                 |        |                                | 
|Broadcast cash flow                      |  | $                               | 7,427  |                                | 
|EBITDA                                   |  | $                               | 5,273  |                                | 
|                                         |  |                                 |        |                                | 
|Radio Broadcasting Operating      Data:  |  |                                 |        |                                | 
|Net revenues                             |  | $                               | 14,775 |                                | 
|Operating expenses                       |  |                                 | 9,464  |                                | 
|Depreciation and         amortization    |  |                                 | 2,729  |                                | 
|Local marketing agreement         fees   |  |                                 | 5      |                                | 
|                                         |  |                                 |        |                                | 
|Operating income                         |  | $                               | 2,577  |                                | 
|                                         |  |                                 |        |                                | 
|                                         |  |                                 |        |                                | 
|Other Data:                              |  |                                 |        |                                | 
|Broadcast cash flow                      |  | $                               | 5,311  |                                | 
|                                         |  |                                 |        |                                | 
|Outdoor Advertising Operating      Data: |  |                                 |        |                                | 
|Net revenues                             |  | $                               | 5,297  |                                | 
|Operating expenses                       |  |                                 | 3,181  |                                | 
|Depreciation and         amortization    |  |                                 | 593    |                                | 
|                                         |  |                                 |        |                                | 
|Operating income                         |  | $                               | 1,523  |                                | 
|                                         |  |                                 |        |                                | 
|                                         |  |                                 |        |                                | 
|Other Data:                              |  |                                 |        |                                | 
|Broadcast cash flow                      |  | $                               | 2,116  |                                | 
|                                         |  |                                 |        |                                | 

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Net Revenues.Consolidated net revenues increased $3.8 million to $23.9 million for the three months ended September 30, 2002 from $20.1 million for the prior year period. Radio net revenues increased $2.0 million to $16.8 million for the three months
ended September 30, 2002 from $14.8 million for the prior year period. Outdoor advertising net revenues increased $1.8 million to $7.1 million for the three months ended September 30, 2002 from $5.3 million for the prior year period. The
increases in outdoor advertising revenue were attributable to approximately $1.0 million in revenue from acquisitions completed subsequent to September 30, 2001, and an increase of approximately $800,000 in revenue from assets operated in both
periods. Growth in radio was driven by continued implementation of our sales strategies focusing on local advertisers and improved advertising market conditions.

Operating Expenses.Consolidated operating expenses increased $2.5 million to $15.1 million for the three months ended September 30, 2002 from $12.6 million for the prior year period. Radio operating expenses increased $872,000 to $10.3 million for the
three months ended September 30, 2002 from $9.5 million for the prior year period. Outdoor advertising operating expenses increased $1.6 million to $4.8 million for the three months ended September 30, 2002 from $3.2 million for the prior
year period. The increase in outdoor advertising expenses was attributable primarily to acquisitions completed in the second half of 2001, while growth in radio costs was primarily attributable to higher selling expenses associated with revenue
growth. As a percentage of net revenues, consolidated operating expenses for the three months ended September 30, 2002 increased from 63.0% to 63.2% as a result of the acquisition of outdoor properties in the second half of 2001.

Corporate Expenses.Corporate expenses were approximately flat with the prior year quarter for the three months ended September 30, 2002. This was attributable to the fact that the increase in
the size of the Companys operations from acquisitions and organic growth did not require a corresponding increase in corporate expenses.

Other Operating Expenses.Consolidated
depreciation and amortization decreased $1.9 million to $1.4 million for the three months ended September 30, 2002. Radio depreciation and amortization decreased $1.8 million to $894,000 for the three months ended September 30, 2002
compared to the prior year quarter. Outdoor advertising depreciation and amortization was approximately flat for the three months ended September 30, 2002 compared to the prior year quarter. The decrease in radio was attributable primarily to
the adoption of Statement of Financial Accounting Standards No. 142, which required that goodwill and intangible assets with indefinite useful lives no longer be amortized. There was little



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change in outdoor depreciation and amortization because the outdoor assets acquired consisted primarily of indefinite lived intangibles, which are
non-depreciable.

Interest and Other Expense. Other expense, consisting primarily of interest expense, decreased $806,000 to $4.8 million for the three months ended September 30,
2002 from $5.6 million for the prior year period, attributable primarily to a non-cash gain of approximately $715,000 to record our swap arrangement at fair value.

Provision for Income taxes.We had a net operating loss during the three months ended September 30, 2001 and 2002. We recorded tax expense of $1.8 million to establish a valuation allowance against net operating loss carry-forwards generated during the three months
ended September 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.

Net Loss.As a result of the factors described above, our consolidated net loss decreased $2.6 million to $1.2 million for the three months ended September 30, 2002 compared to $3.8 million for the prior year period.

Broadcast Cash Flow.As a result of the factors described above, consolidated broadcast cash flow increased $1.4 million to $8.8 million for the three months ended September 30, 2002 from $7.4
million for the 2001 period. Radio broadcast cash flow increased $1.1 million to $6.4 million for the three months ended September 30, 2002 from $5.3 million for the 2001 period. Outdoor advertising broadcast cash flow increased $230,000 to
$2.3 million for the three months ended September 30, 2002 from $2.1 million for the 2001 period. The consolidated broadcast cash flow margin declined slightly to 36.8 % for the three months ended September 30, 2002 compared to 37.0% for
the 2001 period, as a result of operating expense factors described above.

EBITDA.As a result of the factors described above, EBITDA increased $1.4 million to $6.7 million for the
three months ended September 30, 2002 from $5.3 million in the 2001 period. EBITDA margin increased to 28.0% for the three months ended September 30, 2002 from 26.3% for the 2001 period, primarily because the increased revenue from
acquisitions and growth did not require a proportionate increase in corporate expenses.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Net Revenues.Consolidated net revenues increased $15.4 million to $66.3 million for the nine months ended September 30, 2002 from $50.9 million for the prior year period.
Radio net revenues increased $5.0 million to $46.9 million for the nine months ended September 30, 2002 from $41.9 million for the prior year period. Outdoor advertising net revenues increased $10.4 million to $19.4 million for the nine months
ended September 30, 2002 from $9.0 million for the prior year period. The increases in outdoor advertising revenue were attributable to $10.3 million in revenue from acquisitions completed subsequent to September 30, 2001, and an increase of
approximately $100,000 in revenue from assets operated in both periods. Growth in radio was driven by continued implementation of our sales strategies focusing on local advertisers and improved advertising market conditions.

Operating Expenses.Consolidated operating expenses increased $10.8 million to $43.4 million for the nine months ended September 30, 2002 from $32.6 million for the prior
year period. Radio operating expenses increased $2.0 million to 29.4 million for the nine months ended September 30, 2002 from $27.4 million for the prior year period. Outdoor advertising operating expenses increased $8.8 million to $14.0
million for the nine months ended September 30, 2002 from $5.2 million for the prior year period. The increases in outdoor were attributable primarily to acquisitions completed in the second half of 2001,



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while growth in radio costs was primarily attributable to higher selling expenses associated with revenue growth. As a percentage of net revenues, consolidated
operating expenses for the nine months ended September 30, 2002 increased from 64.1% to 65.5% as a result of the acquisition of outdoor properties in the second half of 2001.

Corporate Expenses.Corporate expenses increased $206,000 to $6.4 million for the nine months ended September 30, 2002 from $6.2 million for the prior year period. This increase was attributable primarily to additional staff, office and
administrative costs made necessary by the higher volume of business and administration resulting from acquisitions in the second half of 2001.

Other Operating Expenses.Consolidated
depreciation and amortization decreased $5.0 million to $3.9 million for the nine months ended September 30, 2002. Radio depreciation and amortization decreased $5.3 million to $2.6 million for the nine months ended September 30, 2002.
Outdoor advertising depreciation and amortization increased $384,000 to $1.3 million for the nine months ended September 30, 2002. The decrease in radio was attributable primarily to the adoption of Statement of Financial Accounting Standards
No. 142, which required that goodwill and intangible assets with indefinite useful lives no longer be amortized. The increase in outdoor was attributable primarily to acquisitions in the second half of 2001, offset by the impact of the adoption
of SFAS No. 142.

Interest and Other Expense. Other expense, consisting primarily of interest expense, increased $5.7 million to $15.8 million for the nine months ended
September 30, 2002 from $10.1 million for the prior year period attributable primarily to the incurrence of $200.0 million of senior subordinated indebtedness in July 2001 to fund our acquisitions. Other expense for the nine months ended
September 30, 2002 also includes a non-cash gain of approximately $1.6 million to record our swap arrangement at fair value.

Provision for Income taxes.We had a net operating
loss during the nine months ended September 30, 2001 and September 30, 2002. On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which eliminates the annual amortization of goodwill and
certain long-lived assets with indefinite lives, such as FCC broadcast licenses. 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 expenses to establish a valuation allowance against its deferred tax assets. We recorded additional tax expense of
$11.4 million to establish a valuation allowance against net operating loss carry-forwards generated during the nine months ended September 30, 2002, resulting primarily 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 SFAS 142 to have any impact on our Companys cash flow.

Net Loss.As a
result of the factors described above, our consolidated net loss increased $18.8 million to $26.4 million for the nine months ended September 30, 2002 compared to $7.6 million for the prior period.

Broadcast Cash Flow.As a result of the factors described above, consolidated broadcast cash flow increased $4.6 million to $22.9 million for the nine months ended September 30, 2002 from $18.3 million for the
2001 period. Radio broadcast cash flow increased $3.0 million to $17.5 million for the nine months ended September 30, 2002 from $14.5 million for the 2001 period. Outdoor advertising broadcast cash flow increased $1.6 million to $5.4 million
for the nine months ended September 30, 2002 from $3.8 million for the 2001 period. The consolidated broadcast cash flow margin declined slightly to 34.5% for the nine months ended September 30, 2002 compared to 35.9% for the 2001 period,
as a result of operating expense factors described above.



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EBITDA.As a result of the factors described above, EBITDA increased $4.4 million to $16.5 million for the nine months ended
September 30, 2002 from $12.1 million in the 2001 period. EBITDA margin increased to 24.9% for the nine months ended September 30, 2002 from 23.7% for the 2001 period, primarily because the increased revenue from acquisitions did not
require a proportionate increase in corporate expenses.

Liquidity and Capital Resources

Our cash and cash equivalents balance at September 30, 2002 was
approximately $7.7 million compared to $30.5 million at December 31, 2001. The decrease in cash from December 31, 2001 to September 30, 2002 primarily resulted from (i) our $10.8 million interest payments on January 2, 2002
and July 1, 2002, (ii) capital expenditures and (iii) acquisitions during the period. These uses of cash were offset by $24.9 million in private equity contributions.

Net cash used in operating
activities for the nine months ended September 30, 2002 was $7.7 million compared to $3.5 million of cash generated in the previous period. The decrease was due primarily to the timing of payments of interest on our borrowings and increased
working capital requirements due to our outdoor acquisitions. Cash used in investing activities for the nine months ended September 30, 2002 decreased to $39.8 million from $122.3 million primarily due to decreased acquisition activity in the
current period. Cash provided by financing activities for the nine months ended September 30, 2002 was $24.8 compared to $146.9 million in the previous period, with the change due primarily to decreased financing needs for acquisition activity
in the current period.

Sources and Uses of Funds

During the first six months of 2002, we acquired certain outdoor advertising assets in several transactions with an
aggregate purchase price of approximately $5.7 million, excluding acquisition costs, and sold radio station WKKD-AM, located in Aurora, Illinois for approximately $800,000.

During the third quarter of 2002, we
acquired the assets of Flack Outdoor Advertising, Inc. for $24.9 million, excluding acquisition costs. The acquisition was funded with cash from private equity contributions. As a result of the acquisition, we acquired over 1,600 outdoor displays
located primarily in the Northern Colorado, Wyoming and Missouri markets. Also, in the third quarter of 2002, we acquired outdoor advertising assets in several other transactions with an aggregate purchase price of approximately $4.0
million.

Capital expenditures in the first nine months of 2002 decreased from approximately $5.4 million in the first nine months of 2001 to $4.2 million in same period of 2002. Capital expenditures decreased
due to the completion of consolidation projects during 2001 offset somewhat by the increase in the number of billboards and displays owned in the first half of 2002 as compared to the first half of 2001. Capital expenditures for the nine months
ended September 30, 2002 are summarized below.

|                       |  | Nine Months EndedSeptember 30, 2002Capital Expenditures |      
|---------------------- |  | ------------------------------------------------------- | -----
|                       |  |                                                         |      
|                       |  | Radio                                                   |      
|                       |  |                                                         |      
|                       |  | (in thousands)                                          |      
|                       |  |                                                         |      
|Recurring              |  | $                                                       | 558  
|Non-recurring projects |  |                                                         | 799  
|Revenue producing      |  |                                                         |     
|                       |  |                                                         |      
|                       |  | $                                                       | 1,357
|                       |  |                                                         |      



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We use a significant portion of our capital resources to consummate acquisitions. From January 1, 2002 through September 30, 2002, we funded our acquisitions
from capital contributions from NextMedia Investors funded by equity investments from several private investment funds. We expect to obtain financing for future acquisitions through the incurrence of debt, additional equity contributions, internally
generated funds or a combination of the foregoing. In July 2001, we received a $75.0 million private equity commitment, of which we have $30.1 million of committed but undrawn funds remaining at November 10, 2002, which is available at our
discretion. There can be no assurance, however, that external financing will be available to us on terms we consider favorable or that cash flow from operations will be sufficient to fund our acquisition strategy.

Under the terms of our senior subordinated notes, we make semi-annual interest payments of approximately $10.8 million each January and July 1. The indenture governing the notes contains certain restrictive covenants that, among
other things, limit our ability to incur additional indebtedness, pay dividends and make capital expenditures. As of September 30, 2002, we were in compliance with all these covenants.

We believe that cash
flow from operations, the proceeds from securities offerings made from time to time, drawings on our $30.1 million of committed private equity funds and borrowings under our credit facility will be sufficient to fund all required future interest and
principal payments on the credit facility and the notes, anticipated capital expenditures and acquisitions.

Subsequent to the third quarter, we amended our $100.0 million credit facility. As a result of the
amendment: (i) in the event that we do not utilize the facility, we will not be required to comply with the maximum total leverage ratio until July 1, 2003; (ii) the commitments under the facility were reduced from $100.0 million to
$75.0 million; and (iii) certain financial covenants related to senior leverage, total leverage and interest coverage were relaxed. The amended facility contains customary restrictive covenants that, among other things, limit our ability to
incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above specified limits. Under the senior credit facility, we must satisfy specified financial covenants, such as a maximum leverage ratio
and a minimum ratio of consolidated EBITDA to consolidated net cash interest expense. As of September 30, 2002, we were in compliance with all these covenants. As of October 31, 2002, no amounts were available for borrowing under the
facility.

Except for the amendments in clause (i) above, which has already become effective, the foregoing amendments will not become effective until at least $65.0 million of the $75.0 million private equity
commitment has been funded. As of October 31, 2002, $44.9 million of that equity commitment has been funded to complete acquisitions.

On November 7, 2002, Standard & Poors Ratings Services placed
our B+ corporate credit rating on credit watch with negative implications, and indicated that it would meet with management to discuss our operating outlook and other matters related to our business and operations. If we were downgraded by Standard
& Poors, our ability to raise capital on acceptable terms or at all could be impaired.

|ITEM 3. | MARKET RISK
|------- | -----------

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



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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. We
recognize quarterly income or expense to record the swap arrangements at fair value.

Our remaining long-term debt has a fixed interest rate. Consequently, we do not believe we are currently exposed to any
material interest rate or market risk in connection with our remaining long-term debt.

|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Based on their evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-Q,
our principal executive officer and our principal financial officer have concluded that, as of the date of their evaluation, our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities
Exchange Act of 1934, as amended) are effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date
of their evaluation in connection with the preparation of this quarterly report on Form 10-Q.



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##### Table of Contents

PART II

|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are not currently a party to any material lawsuit or proceeding.

|ITEM 2. | CHANGES IN SECURITIES
|------- | ---------------------

None.

|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.

|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.

|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K.
|------- | ---------------------------------

(a)      Exhibits

|Exhibit No. | Description                                                                                                                                                                                                      
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                  
|4.1*        | Sixth Amendment to the Credit Agreement, dated as of July 31, 2000, among the Registrant, NextMedia Group, Inc., the lenders from time to time party thereto and Deutche Bank Trust Company Americas, as
amended.
|            |                                                                                                                                                                                                                  
|99.1*       | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                               
|            |                                                                                                                                                                                                                  
|99.2*       | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                               

______________

| |  |  | * |  | Filed herewith
| |  |  | - |  | --------------

(b)      Reports on Form 8-K

None.



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##### Table of Contents

SIGNATURES

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

|                        |  |     | NEXT MEDIA OPERATING, INC.(Registrant)                                          
|----------------------- |  | --- | --------------------------------------------------------------------------------
|DATE: NOVEMBER 14, 2002 |  | By: | /s/ STEVENDINETZ                                                                
|                        |  |     |                                                                                 
|                        |  |     | Steven Dinetz, Chief ExecutiveOfficer and President(Principal Executive Officer)

|                        |  |     |                                                                     
|----------------------- |  | --- | --------------------------------------------------------------------
|DATE: NOVEMBER 14, 2002 |  | By: | /s/ SEANR.STOVER                                                    
|                        |  |     |                                                                     
|                        |  |     | Sean R. Stover, Chief Financial Officer(Principal Financial Officer)

|                        |  |     |                                                                                     
|----------------------- |  | --- | ------------------------------------------------------------------------------------
|DATE: NOVEMBER 14, 2002 |  | By: | /s/ SCHUYLERHANSEN                                                                  
|                        |  |     |                                                                                     
|                        |  |     | Schuyler Hansen, Chief AccountingOfficer and Treasurer(Principal Accounting Officer)



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CERTIFICATIONS

I, Steven Dinetz, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of NextMedia Operating, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and form the periods presented in this quarterly report;

4.       The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)       Designed such disclosure
controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is
being prepared;

b)       Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

c)       Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.       The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the equivalent function):

a)       All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b)       Any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.       The
registrants other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  November 14, 2002 |                                      | 
|------------------------ | ------------------------------------ | 
|By:                      | /s/ STEVENDINETZ                     | 
|                         |                                      | 
|                         | Steven DinetzChief Executive Officer | 



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##### Table of Contents

I, Sean R. Stover, certify that:

1.       I have reviewed this quarterly
report on Form 10-Q of NextMedia Operating, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and form the periods presented in this quarterly report;

4.       The
registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)       Designed such disclosure controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)       Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly report (the Evaluation Date); and

c)       Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.       The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent function):

a)       All
significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and

b)       Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrants internal controls; and

6.       The registrants other
certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  November 14, 2002 |                                       | 
|------------------------ | ------------------------------------- | 
|By:                      | /s/ SEANR.STOVER                      | 
|                         |                                       | 
|                         | Sean R. StoverChief Financial Officer | 



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##### Table of Contents

Exhibit Index

|Exhibit No. | Description                                                                                                                                                                                                      
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                  
|4.1         | Sixth Amendment to the Credit Agreement, dated as of July 31, 2000, among the Registrant, NextMedia Group, Inc., the lenders from time to time party thereto and Deutche Bank Trust Company Americas, as
amended.
|            |                                                                                                                                                                                                                  
|99.1        | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                               
|            |                                                                                                                                                                                                                  
|99.2        | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                               
|            |