##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, 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 June 30, 2005



OR



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



For the transition period from
 to



Commission file number: 333-84416



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NextMedia Operating, Inc.

(Exact name of registrant as specified in its charter)



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|                                                                      |  |                                 
|--------------------------------------------------------------------- |  | --------------------------------
|Delaware                                                              |  | 84-154397                       
|(State or other jurisdiction ofincorporation or organization)         |  | (IRS EmployerIdentification No.)
|                                                                      | 
|6312 S. Fiddlers Green Circle, Suite 360E Greenwood Village, Colorado |  | 80111                           
|(Address of principal executive offices)                              |  | (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)



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



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



The total number of shares of common stock, par value $.01 per share, outstanding as of August 15, 2005 was 3,000. The Registrant has no other class of common stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|        |  |         |  |                                                                                                 |  |   
|------- |  | ------- |  | ----------------------------------------------------------------------------------------------- |  | --
|PART I  |  |        |  | Financial Information                                                                           |  |   
|        |  |         | 
|        |  | Item 1. |  | Unaudited Financial Statements                                                                  |  |   
|        |  |         | 
|        |  |         |  | Consolidated Balance Sheets as of December 31, 2004 and June 30, 2005                           |  | 3 
|        |  |         | 
|        |  |         |  | Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2005 |  | 4 
|        |  |         | 
|        |  |         |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2005           |  | 5 
|        |  |         | 
|        |  |         |  | Notes to Consolidated Financial Statements                                                      |  | 6 
|        |  |         | 
|        |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 17
|        |  |         | 
|        |  | Item 3. |  | Quantitative and Qualitative Disclosure About Market Risk                                       |  | 22
|        |  |         | 
|        |  | Item 4. |  | Controls and Procedures                                                                         |  | 22
|        |  |         | 
|PART II |  |        |  | Other Information                                                                               |  |   
|        |  |         | 
|        |  | Item 1. |  | Legal Proceedings                                                                               |  | 23
|        |  |         | 
|        |  | Item 2. |  | Changes in Securities                                                                           |  | 23
|        |  |         | 
|        |  | Item 3. |  | Defaults Upon Senior Securities                                                                 |  | 23
|        |  |         | 
|        |  | Item 4. |  | Submission of Matters of a Vote of Security Holders                                             |  | 23
|        |  |         | 
|        |  | Item 5. |  | Other Information                                                                               |  | 23
|        |  |         | 
|        |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                |  | 23



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

(In thousands, except share amount)

(Unaudited)



|                                                                                                       |  |                  |         |   |              |   |          |  
|------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------ | - | -------- | -
|                                                                                                       |  | December 31,2004 |         |   | June 30,2005 |  
|Assets                                                                                                 |  |                  |         |   |              |   |          |  
|Current assets:                                                                                        |  |                  |         |   |              |   |          |  
|Cash and cash equivalents                                                                              |  | $                | 12,260  |   |              | $ | 12,451   |  
|Accounts receivable, net of allowance for doubtful accounts of $1,335 and $1,353, respectively         |  |                  | 16,287  |   |              |   | 19,372   |  
|Prepaid expenses and other current assets                                                              |  |                  | 3,193   |   |              |   | 3,882    |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total current assets                                                                                   |  |                  | 31,740  |   |              |   | 35,705   |  
|Property and equipment, net                                                                            |  |                  | 87,574  |   |              |   | 81,676   |  
|Definite-lived intangibles, net                                                                        |  |                  | 23,879  |   |              |   | 20,662   |  
|Indefinite-lived intangibles, net                                                                      |  |                  | 369,044 |   |              |   | 344,156  |  
|Other assets                                                                                           |  |                  | 8,566   |   |              |   | 8,697    |  
|Goodwill, net                                                                                          |  |                  | 45,057  |   |              |   | 45,485   |  
|Assets held for sale                                                                                   |  |                  |        |   |              |   | 29,579   |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total assets                                                                                           |  | $                | 565,860 |   |              | $ | 565,960  |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Liabilities and Stockholders Equity                                                                   |  |                  |         |   |              |   |          |  
|Current liabilities:                                                                                   |  |                  |         |   |              |   |          |  
|Accounts payable                                                                                       |  | $                | 1,725   |   |              | $ | 1,154    |  
|Accrued expenses                                                                                       |  |                  | 16,472  |   |              |   | 17,907   |  
|Deferred revenue                                                                                       |  |                  | 917     |   |              |   | 840      |  
|Other                                                                                                  |  |                  | 1,162   |   |              |   | 1,113    |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total current liabilities                                                                              |  |                  | 20,276  |   |              |   | 21,014   |  
|Long-term debt                                                                                         |  |                  | 232,449 |   |              |   | 261,107  |  
|Deferred tax liability                                                                                 |  |                  | 28,590  |   |              |   | 33,595   |  
|Other long-term liabilities                                                                            |  |                  | 860     |   |              |   | 2,928    |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total liabilities                                                                                      |  |                  | 282,175 |   |              |   | 318,644  |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Commitments and contingencies (Note 8)                                                                 |  |                  |         |   |              |   |          |  
|Minority interest  variable interest entities (Note 3)                                                |  |                  | 24,500  |   |              |   |         |  
|Stockholders equity                                                                                   |  |                  |         |   |              |   |          |  
|Common stock, par value $0.01 per share, 3,000 shares authorized, issued and outstanding, respectively |  |                  | 1       |   |              |   | 1        |  
|Additional paid-in capital                                                                             |  |                  | 350,561 |   |              |   | 350,248  |  
|Accumulated deficit                                                                                    |  |                  | (91,377 | ) |              |   | (102,933 | )
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total stockholders equity                                                                             |  |                  | 259,185 |   |              |   | 247,316  |  
|                                                                                                       |  |                  |         |   |              |   |          |  
|Total liabilities and stockholders equity                                                             |  | $                | 565,860 |   |              | $ | 565,960  |  
|                                                                                                       |  |                  |         |   |              |   |          |  



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



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)



|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                         |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                                         |  | 2004                       |        |   | 2005                     |   |        | 2004 |  |   | 2005   |  
|Net revenue                                                                              |  | $                          | 27,255 |   |                          | $ | 30,730 |      |  | $ | 50,106 |   |  | $ | 54,861  |  
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                            | 16,645 |   |                          |   | 17,850 |      |  |   | 31,822 |   |  |   | 33,613  |  
|Corporate expenses                                                                       |  |                            | 2,256  |   |                          |   | 2,271  |      |  |   | 4,184  |   |  |   | 4,890   |  
|Depreciation and amortization                                                            |  |                            | 3,362  |   |                          |   | 3,713  |      |  |   | 6,691  |   |  |   | 7,431   |  
|Local marketing agreement fees                                                           |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   | 98      |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|Total operating expenses                                                                 |  |                            | 22,263 |   |                          |   | 23,834 |      |  |   | 42,697 |   |  |   | 46,032  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|Operating income                                                                         |  |                            | 4,992  |   |                          |   | 6,896  |      |  |   | 7,409  |   |  |   | 8,829   |  
|Interest expense, net                                                                    |  |                            | 6,068  |   |                          |   | 6,555  |      |  |   | 12,132 |   |  |   | 12,985  |  
|Write off of deferred finance costs due to extinguishment of debt                        |  |                            | 1,541  |   |                          |   |       |      |  |   | 1,541  |   |  |   |        |  
|Other (income) expense                                                                   |  |                            | (65    | ) |                          |   | 2,427  |      |  |   | (3,887 | ) |  |   | 2,943   |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|Loss from continuing operations before income taxes                                      |  |                            | (2,552 | ) |                          |   | (2,086 | )    |  |   | (2,377 | ) |  |   | (7,099  | )
|Provision for income taxes                                                               |  |                            | (1,066 | ) |                          |   | 2,316  |      |  |   | (1,255 | ) |  |   | 4,592   |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|Loss from continuing operations                                                          |  |                            | (1,486 | ) |                          |   | (4,402 | )    |  |   | (1,122 | ) |  |   | (11,691 | )
|Discontinued operations, net (Note 3)                                                    |  |                            | 283    |   |                          |   | 77     |      |  |   | 233    |   |  |   | 134     |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  
|Net loss                                                                                 |  | $                          | (1,203 | ) |                          | $ | (4,325 | )    |  | $ | (889   | ) |  | $ | (11,557 | )
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |         |  



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



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                            |  |                          |         |   |      |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                            |  | Six Months EndedJune 30, |        
|                                                                            |  | 2004                     |         |   | 2005 |  
|Cash Flows From Operating Activities                                        |  |                          |         |   |      |   |         |  
|Net loss                                                                    |  | $                        | (889    | ) |      | $ | (11,557 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |         |   |      |   |         |  
|Depreciation and amortization                                               |  |                          | 6,812   |   |      |   | 7,602   |  
|Non-cash interest expense                                                   |  |                          | 589     |   |      |   | 666     |  
|Provision for bad debt expense                                              |  |                          | 502     |   |      |   | 539     |  
|Non-cash compensation expense                                               |  |                          | 39      |   |      |   | 36      |  
|Unrealized loss on interest rate swap                                       |  |                          | 135     |   |      |   | 2,223   |  
|Provision for deferred taxes                                                |  |                          | (843    | ) |      |   | 5,005   |  
|Other (gains) and losses                                                    |  |                          | (2,703  | ) |      |   | 616     |  
|Changes in assets and liabilities, net of effect of acquisitions:           |  |                          |         |   |      |   |         |  
|Accounts receivable                                                         |  |                          | (1,139  | ) |      |   | (3,623  | )
|Prepaid expenses and other assets                                           |  |                          | 1,026   |   |      |   | (624    | )
|Accounts payable and accrued expenses                                       |  |                          | (15,874 | ) |      |   | 625     |  
|Deferred revenue                                                            |  |                          | 774     |   |      |   | (77     | )
|Other current liabilities                                                   |  |                          | 5       |   |      |   | (49     | )
|                                                                            |  |                          |         |   |      |   |         |  
|Net cash (used)/provided in operating activities                            |  |                          | (11,566 | ) |      |   | 1,382   |  
|                                                                            |  |                          |         |   |      |   |         |  
|Cash Flows From Investing Activities                                        |  |                          |         |   |      |   |         |  
|Purchase of fixed assets                                                    |  |                          | (3,632  | ) |      |   | (2,234  | )
|Payments for acquisitions, net of cash acquired                             |  |                          | (22,228 | ) |      |   | (26,537 | )
|Proceeds from sale of properties                                            |  |                          | 3,751   |   |      |   | 196     |  
|Proceeds from termination of interest rate swaps                            |  |                          | 1,600   |   |      |   |        |  
|                                                                            |  |                          |         |   |      |   |         |  
|Net cash used in investing activities                                       |  |                          | (20,509 | ) |      |   | (28,575 | )
|                                                                            |  |                          |         |   |      |   |         |  
|Cash Flows From Financing Activities                                        |  |                          |         |   |      |   |         |  
|Proceeds from revolving credit facilities                                   |  |                          | 39,000  |   |      |   | 33,000  |  
|Repayment of revolving credit facilities                                    |  |                          | (4,000  | ) |      |   | (4,500  | )
|Payments of financing related costs                                         |  |                          | (427    | ) |      |   | (753    | )
|Dividend to parent                                                          |  |                          | (2,133  | ) |      |   | (300    | )
|Other                                                                       |  |                          | (147    | ) |      |   | (63     | )
|                                                                            |  |                          |         |   |      |   |         |  
|Net cash provided by financing activities                                   |  |                          | 32,293  |   |      |   | 27,384  |  
|                                                                            |  |                          |         |   |      |   |         |  
|Increase in cash and cash equivalents                                       |  |                          | 218     |   |      |   | 191     |  
|Cash and cash equivalents at beginning of period                            |  |                          | 707     |   |      |   | 12,260  |  
|                                                                            |  |                          |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                        | 925     |   |      | $ | 12,451  |  
|                                                                            |  |                          |         |   |      |   |         |  
|Supplemental Cash Flow Information                                          |  |                          |         |   |      |   |         |  
|Cash payments during the period for:                                        |  |                          |         |   |      |   |         |  
|Interest                                                                    |  | $                        | 22,135  |   |      | $ | 12,050  |  
|                                                                            |  |                          |         |   |      |   |         |  
|Tax                                                                         |  | $                        |        |   |      | $ |        |  
|                                                                            |  |                          |         |   |      |   |         |  



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



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



1. Interim Financial Data And Significant Accounting Policies



The accompanying consolidated unaudited interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Management believes that the Company has made all adjustments necessary for a fair presentation of
results of the interim periods and that these adjustments were of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States 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, 2005, due to
seasonality and other factors. You should read the consolidated financial statements in conjunction with the consolidated financial statements of NextMedia Operating, Inc. and the notes thereto included in our annual report on Form 10-K, as filed
with the Securities and Exchange Commission on March 30, 2005. In this quarterly report on Form 10-Q, references to the Company, we, our and us refer to NextMedia Operating, Inc. and its subsidiaries,
and the term NextMedia refers only to NextMedia Operating, Inc.



2. Recent Accounting Pronouncements



In March
2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations(FIN 47). FIN 47 is an interpretation of FASB Statement 143, Asset
Retirement Obligations,which was issued in June 2001. According to FIN 47, uncertainty about the timing and (or) method of settlement because they are conditional on a future event that may or may not be within the control of the entity should
be factored into the measurement of the asset retirement obligation when sufficient information exists. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application of interim financial information is permitted, but is not required. The adoption of FIN 47 is not expected to have a material impact
on the Companys financial position or results of operations.



In June 2005, the Emerging Issues Task Force (EITF) issued EITF 05-6, Determining the Amortization Period of Leasehold Improvements(EITF 05-6). EITF 05-6 requires that assets recognized under capital leases
generally be amortized in a manner consistent with the lessees normal depreciation policy except that the amortization period is limited to the lease term (which includes renewal periods that are reasonably assured). EITF 05-6 also addresses
the determination of the amortization period for leasehold improvements that are purchased subsequent to the inception of the lease. Leasehold improvements acquired in a business combination or purchased subsequent to the inception of the lease
should be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. The Company adopted EITF 05-6 on July 1,
2005 and the adoption did not materially impact its financial position or results of operations.



3. Acquisitions and Dispositions



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



In 2004, simultaneous with entering into purchase agreements to acquire five radio stations in Wilmington, North Carolina for a total of $24,500, the
Company entered into local marketing agreements, or LMAs, with respect to those stations and determined that it is the primary beneficiary with respect to certain assets of two entities which are small, closely held organizations involved in radio
broadcasting activities. As a result, the Company consolidated the fair value of the assets to be acquired at December 31, 2004 in the accompanying financial statements pursuant to FIN-46R Consolidation of Variable Interest Entities.The
effect of this consolidation at December 31, 2004, was the inclusion of $995 of property and equipment, $19,620 of indefinite-lived intangible assets and $3,885 of goodwill with a corresponding inclusion of $24,500 in minority interest, representing
the deferred purchase price of $24,500 under the fixed price purchase agreements. As a result of the LMAs, the Companys financial statements include the broadcast revenues and operating expenses of the stations to be acquired since the date
the Company entered into the LMAs.



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



In February 2005, the acquisition of these five radio stations was closed at purchase price of
$24,500 with cash funded through the Companys Revolving Credit Facility eliminating the $24,500 of minority interest. The final purchase allocation is consistent with the FIN-46R consolidation at December 31, 2004.



During the second quarter of 2005, we acquired certain outdoor advertising
assets in several transactions with an aggregate purchase price of approximately $1.6 million. In addition, we entered into a contract to sell the assets of radio stations KTHX-FM, KRZQ-FM, KJZS-FM and KURK-FM serving the Reno, Nevada market and
radio stations KLLL-FM, KMMX-FM, KONE-FM and KBTE-FM serving the Lubbock, Texas market in exchange for approximately $34.0 million in cash. The assets to be sold consist primarily of FCC licenses and broadcast equipment. We have classified the
carrying value of the assets to be sold as held for sale on the balance sheet and the results of operations for these reporting units have been classified as discontinued operations in all periods presented. The assets held for sale included $3,180
of property and equipment and $26,399 of FCC licenses. During the three-month and six-month periods ended June 30, 2005, these assets generated net revenues of approximately $1.9 million and $3.6 million respectively. This transaction is expected to
be completed in 2005 upon FCC approval. Management decided to sell these assets because we believe there are alternative uses of capital which may provide a higher return on investment.



|                                      |  |                          |       |                         |   |       |  |      |       |  |   |      
|------------------------------------- |  | ------------------------ | ----- | ----------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                      |  | Three Month EndedJune 30 |       | Six Months EndedJune 30
|                                      |  | 2004                     |       | 2005                    |   | 2004  |  | 2005
|Net revenue                           |  | $                        | 1,960 |                         | $ | 1,931 |  | $    | 3,500 |  | $ | 3,633
|Market level operating expense        |  |                          | 1,379 |                         |   | 1,523 |  |      | 2,675 |  |   | 2,855
|Depreciation and amortization expense |  |                          | 62    |                         |   | 95    |  |      | 121   |  |   | 172  
|Local marketing agreement fees        |  |                          | 30    |                         |   | 30    |  |      | 60    |  |   | 60   
|                                      |  |                          |       |                         |   |       |  |      |       |  |   |      
|Income before income taxes            |  |                          | 489   |                         |   | 283   |  |      | 644   |  |   | 546  
|Income tax expense                    |  |                          | 206   |                         |   | 206   |  |      | 411   |  |   | 412  
|                                      |  |                          |       |                         |   |       |  |      |       |  |   |      
|Net income                            |  | $                        | 283   |                         | $ | 77    |  | $    | 233   |  | $ | 134  
|                                      |  |                          |       |                         |   |       |  |      |       |  |   |      



On August 12, 2005, we
acquired the assets of Eastern Outdoor, Inc. for $16,250, excluding acquisition costs. As a result of the acquisition, we acquired approximately 486 outdoor displays located in 14 counties in eastern North Carolina.



4. Property and Equipment



Property and equipment consist of the following:



|                              |  |                                      |  |                       |         |   |                   |   |         |  
|----------------------------- |  | ------------------------------------ |  | --------------------- | ------- | - | ----------------- | - | ------- | -
|                              |  | DepreciableLife                      |  | As ofDecember 31,2004 |         |   | As ofJune 30,2005 |  
|Land and improvements         |  |                                     |  | $                     | 7,102   |   |                   | $ | 6,797   |  
|Construction in progress      |  |                                     |  |                       | 1,148   |   |                   |   | 727     |  
|Buildings and improvements    |  | 20                                   |  |                       | 10,811  |   |                   |   | 10,952  |  
|Leasehold improvements        |  | Lesser of the lease term or 10 years |  |                       | 1,732   |   |                   |   | 1,671   |  
|Broadcast equipment           |  | 520                                 |  |                       | 9,874   |   |                   |   | 8,735   |  
|Office equipment              |  | 7                                    |  |                       | 2,019   |   |                   |   | 1,917   |  
|Computer software and systems |  | 35                                  |  |                       | 2,413   |   |                   |   | 2,462   |  
|Tower and antennae            |  | 520                                 |  |                       | 6,586   |   |                   |   | 5,427   |  
|Vehicles                      |  | 3                                    |  |                       | 2,403   |   |                   |   | 2,333   |  
|Furniture and fixtures        |  | 7                                    |  |                       | 1,484   |   |                   |   | 1,508   |  
|Advertising displays          |  | 315                                 |  |                       | 62,899  |   |                   |   | 63,109  |  
|                              |  |                                      |  |                       |         |   |                   |   |         |  
|                              |  |                                      |  |                       | 108,471 |   |                   |   | 105,638 |  
|Less accumulated depreciation |  |                                      |  |                       | (20,897 | ) |                   |   | (23,962 | )
|                              |  |                                      |  |                       |         |   |                   |   |         |  
|                              |  |                                      |  | $                     | 87,574  |   |                   | $ | 81,676  |  
|                              |  |                                      |  |                       |         |   |                   |   |         |  



7



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



5. Intangible Assets



Intangible assets consist of the following:



|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|------------------------------------------------------------------------------ |  | -------------------- |  | --------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                               |  | EstimatedUseful Life |  | As ofDecember 31,2004 |         |   | As ofJune 30,2005 |  
|Gross:                                                                         |  |                      |  |                       |         |   |                   |   |         |  
|FCC licenses                                                                   |  |                     |  | $                     | 309,134 |   |                   | $ | 282,162 |  
|Goodwill                                                                       |  |                     |  |                       | 45,057  |   |                   |   | 45,485  |  
|Advertising permits                                                            |  |                     |  |                       | 67,310  |   |                   |   | 68,081  |  
|Easements                                                                      |  |                     |  |                       | 1,358   |   |                   |   | 1,618   |  
|Definite lived intangibles, primarily customer base and non-compete agreements |  | 115                 |  |                       | 36,117  |   |                   |   | 35,978  |  
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|                                                                               |  |                      |  | $                     | 458,976 |   |                   | $ | 433,324 |  
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|Less, accumulated amortization:                                                |  |                      |  |                       |         |   |                   |   |         |  
|FCC licenses                                                                   |  |                      |  | $                     | (8,758  | ) |                   | $ | (7,705  | )
|Goodwill                                                                       |  |                      |  |                       |        |   |                   |   |        |  
|Advertising permits                                                            |  |                      |  |                       |        |   |                   |   |        |  
|Easements                                                                      |  |                      |  |                       |        |   |                   |   |        |  
|Definite lived intangibles, primarily customer base and non-compete agreements |  |                      |  |                       | (12,238 | ) |                   |   | (15,316 | )
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|                                                                               |  |                      |  | $                     | (20,996 | ) |                   | $ | (23,020 | )
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|Net:                                                                           |  |                      |  |                       |         |   |                   |   |         |  
|FCC licenses                                                                   |  |                      |  | $                     | 300,376 |   |                   | $ | 274,457 |  
|Goodwill                                                                       |  |                      |  |                       | 45,057  |   |                   |   | 45,485  |  
|Advertising permits                                                            |  |                      |  |                       | 67,310  |   |                   |   | 68,081  |  
|Easements                                                                      |  |                      |  |                       | 1,358   |   |                   |   | 1,618   |  
|Definite lived intangibles, primarily customer base and non-compete agreements |  |                      |  |                       | 23,879  |   |                   |   | 20,662  |  
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  
|                                                                               |  |                      |  | $                     | 437,980 |   |                   | $ | 410,303 |  
|                                                                               |  |                      |  |                       |         |   |                   |   |         |  



The aggregate change in goodwill,
advertising permits, easements and FCC licenses in the period from December 31, 2004 to June 30, 2005 resulted entirely from the Companys acquisitions of outdoor assets and dispositions of radio reporting units. There were no impairment losses
recognized during the period.



Definite-Lived Intangible Assets



The Company has definite-lived intangible assets recorded
that continue to be amortized in accordance with SFAS 142. These assets consist primarily of non-compete agreements and customer base which are amortized over the respective estimated lives of the assets. Total amortization expense from
definite-lived intangible assets for the six months ended June 30, 2005 was approximately $3,217. The following table presents managements estimate of amortization expense for each of the five succeeding fiscal years for definite-lived
intangibles as of the dates indicated. The most significant definite-lived intangible assets acquired by the Company are existing customer bases which have relatively short useful lives due to customer turnover. Consequently, the Company applies an
accelerated amortization methodology to these assets.



|     |  |   |      
|---- |  | - | -----
|2005 |  | $ | 6,794
|2006 |  |   | 4,335
|2007 |  |   | 2,939
|2008 |  |   | 2,095
|2009 |  |   | 1,561



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



6. Accrued Expenses



Accrued expenses consist of the following:



|                                 |  |                       |        |                   |   |       
|-------------------------------- |  | --------------------- | ------ | ----------------- | - | ------
|                                 |  | As ofDecember 31,2004 |        | As ofJune 30,2005
|Accrued compensation and bonuses |  | $                     | 1,346  |                   | $ | 1,297 
|Accrued commissions              |  |                       | 828    |                   |   | 898   
|Accrued interest                 |  |                       | 10,866 |                   |   | 11,119
|Accrued property taxes           |  |                       | 609    |                   |   | 747   
|Accrued rents                    |  |                       | 605    |                   |   | 1,086 
|Unfavorable leases               |  |                       | 214    |                   |   | 261   
|Accrued franchise taxes          |  |                       | 170    |                   |   | 239   
|Accrued legal and professional   |  |                       | 383    |                   |   | 759   
|Accrued insurance costs          |  |                       | 214    |                   |   | 350   
|Accrued music license fees       |  |                       | 120    |                   |   | 32    
|Other                            |  |                       | 1,117  |                   |   | 1,119 
|                                 |  |                       |        |                   |   |       
|                                 |  | $                     | 16,472 |                   | $ | 17,907
|                                 |  |                       |        |                   |   |       



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



7. Long-Term Debt



Long-term debt consists of the following:



|                          |  |                       |         |   |                   |   |         |  
|------------------------- |  | --------------------- | ------- | - | ----------------- | - | ------- | -
|                          |  | As ofDecember 31,2004 |         |   | As ofJune 30,2005 |  
|Revolving Credit Facility |  | $                     | 34,500  |   |                   | $ | 63,000  |  
|Senior Subordinated Notes |  |                       | 200,000 |   |                   |   | 200,000 |  
|Unamortized discount      |  |                       | (2,051  | ) |                   |   | (1,893  | )
|                          |  |                       |         |   |                   |   |         |  
|Total long-term debt      |  | $                     | 232,449 |   |                   | $ | 261,107 |  
|                          |  |                       |         |   |                   |   |         |  



The Companys
Revolving Credit Facility contains customary restrictive covenants that, among other things, limit the Companys ability to incur additional indebtedness and liens in connection therewith, pay dividends and make capital expenditures above
specified limits. Under the Revolving Credit Facility, the Company must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net
cash interest expense. As of June 30, 2005, the Company was in compliance with all of these covenants. After taking into account these restrictive covenants, as of June 30, 2005, the Company had approximately $11,936 of borrowing capacity under its
Revolving Credit Facility.



The Companys 10.75% Senior
Subordinated Notes due 2011 (the Senior Subordinated Notes) require the Company to make semi-annual interest payments of approximately $10,750 on January 1 and July 1 of each year. The indenture governing the Senior Subordinated Notes
contains certain restrictive covenants that, among other things, limit the Companys ability to incur additional indebtedness and pay dividends. As of June 30, 2005, the Company was in compliance with these covenants.



8. Commitments and Contingencies



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



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



9. Segment Data



Based on information provided to the Chief Operating Decision Maker, principally the Executive Chairman of the Board of
Directors and Chief Executive Officer and President, the Company has determined that two reportable operating segmentsradio broadcasting and outdoor advertisingbest reflect the Companys current management and operations.



The radio broadcasting segment is comprised of radio stations
and networks for which the Company is the licensee or for which the Company programs and sells on-air advertising time under local marketing agreements. At June 30, 2005, the radio broadcasting segment included 66 radio stations owned and operated
by the Company. All of these stations operate in domestic markets. The radio broadcasting segment also operates various radio networks.



The outdoor advertising segment includes traditional outdoor advertising displays, such as roadside bulletins, posters and transit displays that the
Company owns or operates under lease arrangements, as well as advertising displays that the Company installs in public locations, including restaurants, health clubs, retail stores and entertainment venues. At June 30, 2005, the outdoor advertising
segment owned or operated over 5,100 outdoor displays and indoor advertising display faces in more than 2,400 retail locations across the United States. All of these displays are located in domestic markets.



The accounting policies of the segments are the same as those described in
the summary of significant accounting policies in Note 1 to the Companys audited consolidated financial statements contained in the Companys annual report on Form 10-K as filed with the SEC on March 30, 2005. There are no intersegment
sales or transfers.



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



10



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|---------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                 |  | Three months endedJune 30, |        |   | Six months endedJune 30, |  
|                                                                 |  | 2004                       |        |   | 2005                     |   |        | 2004 |  |   | 2005    |  
|Net revenue:                                                     |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Radio Broadcasting                                               |  | $                          | 18,226 |   |                          | $ | 19,331 |      |  | $ | 33,087  |   |  | $ | 35,263 |  
|Outdoor Advertising                                              |  |                            | 9,029  |   |                          |   | 11,399 |      |  |   | 17,019  |   |  |   | 19,598 |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Consolidated                                                     |  |                            | 27,255 |   |                          |   | 30,730 |      |  |   | 50,106  |   |  |   | 54,861 |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Market level expenses:                                           |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Radio Broadcasting                                               |  |                            | 10,384 |   |                          |   | 11,227 |      |  |   | 19,914  |   |  |   | 21,660 |  
|Outdoor Advertising                                              |  |                            | 6,261  |   |                          |   | 6,623  |      |  |   | 11,908  |   |  |   | 11,953 |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Consolidated                                                     |  |                            | 16,645 |   |                          |   | 17,850 |      |  |   | 31,822  |   |  |   | 33,613 |  
|Depreciation and amortization:                                   |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Radio Broadcasting                                               |  |                            | 1,155  |   |                          |   | 1,323  |      |  |   | 2,288   |   |  |   | 2,648  |  
|Outdoor Advertising                                              |  |                            | 2,207  |   |                          |   | 2,390  |      |  |   | 4,403   |   |  |   | 4,783  |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Consolidated                                                     |  |                            | 3,362  |   |                          |   | 3,713  |      |  |   | 6,691   |   |  |   | 7,431  |  
|Local marketing agreement fees-radio                             |  |                            |       |   |                          |   |       |      |  |   |        |   |  |   | 98     |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Segment profit:                                                  |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Radio Broadcasting                                               |  |                            | 6,687  |   |                          |   | 6,781  |      |  |   | 10,885  |   |  |   | 10,857 |  
|Outdoor Advertising                                              |  |                            | 561    |   |                          |   | 2,386  |      |  |   | 708     |   |  |   | 2,862  |  
|Corporate Expenses                                               |  |                            | 2,256  |   |                          |   | 2,271  |      |  |   | 4,184   |   |  |   | 4,890  |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Operating income                                                 |  |                            | 4,992  |   |                          |   | 6,896  |      |  |   | 7,409   |   |  |   | 8,829  |  
|Interest expense, net                                            |  |                            | 6,068  |   |                          |   | 6,555  |      |  |   | 12,132  |   |  |   | 12,985 |  
|Write off of deferred finance cost due to extinguishment of debt |  |                            | 1,541  |   |                          |   |       |      |  |   | 1,541   |   |  |   |       |  
|Other (income) expense                                           |  |                            | (65    | ) |                          |   | 2,427  |      |  |   | (3,887  | ) |  |   | 2,943  |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Income (loss) from continuing operations before income taxes     |  | $                          | (2,552 | ) |                          | $ | (2,086 | )    |  | $ | (2,377  | ) |  | $ | (7,099 | )
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Addition to long-lived assets:                                   |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Radio Broadcasting                                               |  | $                          | 7,138  |   |                          | $ | 1,220  |      |  | $ | 23,215  |   |  | $ | 3,033  |  
|Outdoor Advertising                                              |  |                            | 44,580 |   |                          |   | 1,864  |      |  |   | 91,666  |   |  |   | 2,121  |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Consolidated                                                     |  | $                          | 51,718 |   |                          | $ | 3,084  |      |  | $ | 114,881 |   |  | $ | 5,154  |  
|                                                                 |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |        |  



|                           |  |                       |         |                   |   |        
|-------------------------- |  | --------------------- | ------- | ----------------- | - | -------
|                           |  | As ofDecember 31,2004 |         | As ofJune 30,2005
|Total identifiable assets: |  |                       |         |                   |   |        
|Radio Broadcasting         |  | $                     | 400,566 |                   | $ | 401,642
|Outdoor Advertising        |  |                       | 165,294 |                   |   | 164,318
|                           |  |                       |         |                   |   |        
|Consolidated               |  | $                     | 565,860 |                   | $ | 565,960
|Goodwill, net:             |  |                       |         |                   |   |        
|Radio Broadcasting         |  | $                     | 32,317  |                   | $ | 32,485 
|Outdoor Advertising        |  |                       | 12,740  |                   |   | 13,000 
|                           |  |                       |         |                   |   |        
|Consolidated               |  | $                     | 45,057  |                   | $ | 45,485 



10. Supplemental Guarantor
Information



The Companys Senior Subordinated Notes
are guaranteed on a senior subordinated basis, jointly and severally, by all of the Companys subsidiaries (the Guarantor Subsidiaries). The Company has collateralized its Revolving Credit Facility by granting a first
priority-perfected pledge of its assets including, without limitation, the capital stock of the Company and its subsidiaries.



11



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NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

December 31, 2004



|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|---------------------------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------- | ------------------ |  | - | -------- | - |  | - | -------
|                                                                 |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   
|Assets                                                           |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Current assets:                                                  |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Cash and cash equivalents                                        |  | $                        | 13,006  |                       | $ | (746    | )                  |  | $ |         |   |  | $ | 12,260 
|Accounts receivable, net                                         |  |                          | 11,984  |                       |   | 4,303   |                    |  |   |         |   |  |   | 16,287 
|Prepaid and other current assets                                 |  |                          | 497     |                       |   | 2,696   |                    |  |   |         |   |  |   | 3,193  
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total current assets                                             |  |                          | 25,487  |                       |   | 6,253   |                    |  |   |         |   |  |   | 31,740 
|Property and equipment, net                                      |  |                          | 27,860  |                       |   | 59,714  |                    |  |   |         |   |  |   | 87,574 
|Intangibles, net                                                 |  |                          | 38,360  |                       |   | 399,620 |                    |  |   |         |   |  |   | 437,980
|Other assets                                                     |  |                          | 8,482   |                       |   | 12,168  |                    |  |   | (12,084  | ) |  |   | 8,566  
|Investment in subsidiaries                                       |  |                          | 455,423 |                       |   |        |                    |  |   | (455,423 | ) |  |   |       
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total assets                                                     |  | $                        | 555,612 |                       | $ | 477,755 |                    |  | $ | (467,507 | ) |  | $ | 565,860
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Liabilities and Stockholders Equity                             |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Current liabilities:                                             |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Accounts payable, accrued expenses and other current liabilities |  | $                        | 25,842  |                       | $ | 6,518   |                    |  | $ | (12,084  | ) |  | $ | 20,276 
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total current liabilities                                        |  |                          | 25,842  |                       |   | 6,518   |                    |  |   | (12,084  | ) |  |   | 20,276 
|Long-term debt                                                   |  |                          | 232,449 |                       |   |        |                    |  |   |         |   |  |   | 232,449
|Other long-term liabilities                                      |  |                          | 13,636  |                       |   | 15,814  |                    |  |   |         |   |  |   | 29,450 
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total liabilities                                                |  |                          | 271,927 |                       |   | 22,332  |                    |  |   | (12,084  | ) |  |   | 282,175
|Minority interest                                                |  |                          | 24,500  |                       |   |        |                    |  |   |         |   |  |   | 24,500 
|Stockholders equity                                             |  |                          | 259,185 |                       |   | 455,423 |                    |  |   | (455,423 | ) |  |   | 259,185
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total liabilities and stockholders equity                       |  | $                        | 555,612 |                       | $ | 477,755 |                    |  | $ | (467,507 | ) |  | $ | 565,860
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        



12



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Balance Sheet

June 30, 2005



|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|---------------------------------------------------------------- |  | ------------------------ | ------- | --------------------- | - | ------- | ------------------ |  | - | -------- | - |  | - | -------
|                                                                 |  | NextMediaOperating, Inc. |         | GuarantorSubsidiaries |   |         | EliminatingEntries |  |   | Total   
|Assets                                                           |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Current assets:                                                  |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Cash and cash equivalents                                        |  | $                        | 13,050  |                       | $ | (599    | )                  |  | $ |         |   |  | $ | 12,451 
|Accounts receivable, net                                         |  |                          | 13,203  |                       |   | 6,169   |                    |  |   |         |   |  |   | 19,372 
|Prepaid and other current assets                                 |  |                          | 756     |                       |   | 3,126   |                    |  |   |         |   |  |   | 3,882  
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total current assets                                             |  |                          | 27,009  |                       |   | 8,696   |                    |  |   |         |   |  |   | 35,705 
|Property and equipment, net                                      |  |                          | 24,258  |                       |   | 57,418  |                    |  |   |         |   |  |   | 81,676 
|Intangibles, net                                                 |  |                          | 37,712  |                       |   | 372,591 |                    |  |   |         |   |  |   | 410,303
|Other assets                                                     |  |                          | 27,983  |                       |   | 71      |                    |  |   | (19,357  | ) |  |   | 8,697  
|Assets held for sale                                             |  |                          | 3,180   |                       |   | 26,399  |                    |  |   |         |   |  |   | 29,579 
|Investment in subsidiaries                                       |  |                          | 423,067 |                       |   |        |                    |  |   | (423,067 | ) |  |   |       
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total assets                                                     |  | $                        | 543,209 |                       | $ | 465,175 |                    |  | $ | (442,424 | ) |  | $ | 565,960
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Liabilities and Stockholders Equity                             |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Current liabilities:                                             |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Accounts payable, accrued expenses and other current liabilities |  | $                        | 13,937  |                       | $ | 26,434  |                    |  | $ | (19,357  | ) |  | $ | 21,014 
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total current liabilities                                        |  |                          | 13,937  |                       |   | 26,434  |                    |  |   | (19,357  | ) |  |   | 21,014 
|Long-term debt                                                   |  |                          | 261,107 |                       |   |        |                    |  |   |         |   |  |   | 261,107
|Other long-term liabilities                                      |  |                          | 20,849  |                       |   | 15,674  |                    |  |   |         |   |  |   | 36,523 
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total liabilities                                                |  |                          | 295,893 |                       |   | 42,108  |                    |  |   | (19,357  | ) |  |   | 318,644
|Stockholders equity                                             |  |                          | 247,316 |                       |   | 423,067 |                    |  |   | (423,067 | ) |  |   | 247,316
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        
|Total liabilities and stockholders equity                       |  | $                        | 543,209 |                       | $ | 465,175 |                    |  | $ | (442,424 | ) |  | $ | 565,960
|                                                                 |  |                          |         |                       |   |         |                    |  |   |          |   |  |   |        



13



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Statement of Operations

For the Three Months Ended
June 30, 2005



|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ------------------------ | ------ | - | --------------------- | - | ------------------ |  | - | ------ | - |  | - | ------ | -
|                                                |  | NextMediaOperating, Inc. |        |   | GuarantorSubsidiaries |   | EliminatingEntries |  |   | Total  |  
|Net revenue                                     |  | $                        | 19,331 |   |                       | $ | 11,399             |  | $ |       |   |  | $ | 30,730 |  
|Total operating expenses                        |  |                          | 11,227 |   |                       |   | 6,623              |  |   |       |   |  |   | 17,850 |  
|Corporate expenses                              |  |                          | 1,408  |   |                       |   | 863                |  |   |       |   |  |   | 2,271  |  
|Depreciation and amortization                   |  |                          | 1,323  |   |                       |   | 2,390              |  |   |       |   |  |   | 3,713  |  
|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  
|Operating income                                |  |                          | 5,373  |   |                       |   | 1,523              |  |   |       |   |  |   | 6,896  |  
|Interest expense, net                           |  |                          | 6,555  |   |                       |   |                   |  |   |       |   |  |   | 6,555  |  
|Other expense                                   |  |                          | 2,281  |   |                       |   | 146                |  |   |       |   |  |   | 2,427  |  
|Equity in loss of subsidiaries                  |  |                          | (1,377 | ) |                       |   |                   |  |   | 1,377  |   |  |   |       |  
|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  
|Income (loss) before provision for income taxes |  |                          | (2,086 | ) |                       |   | 1,377              |  |   | (1,377 | ) |  |   | (2,086 | )
|Deferred tax                                    |  |                          | 2,316  |   |                       |   |                   |  |   |       |   |  |   | 2,316  |  
|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  
|Net income (loss) from continuing operations    |  |                          | (4,402 | ) |                       |   | 1,377              |  |   | (1,377 | ) |  |   | (4,402 | )
|Discontinued operations, net                    |  |                          | 77     |   |                       |   |                   |  |   |       |   |  |   | 77     |  
|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  
|Net income/(loss) after taxes                   |  | $                        | (4,325 | ) |                       | $ | 1,377              |  | $ | (1,377 | ) |  | $ | (4,325 | )
|                                                |  |                          |        |   |                       |   |                    |  |   |        |   |  |   |        |  



NextMedia Operating,
Inc.

Supplemental Combining Statement of Operations

For the Three Months Ended June 30, 2004



|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------------ | ------ | - | --------------------- | - | ----- | ------------------ |  | - | ----- | - |  | - | ------ | -
|                                                                  |  | NextMediaOperating, Inc. |        |   | GuarantorSubsidiaries |   |       | EliminatingEntries |  |   | Total |  
|Net revenue                                                       |  | $                        | 18,225 |   |                       | $ | 9,030 |                    |  | $ |      |   |  | $ | 27,255 |  
|Total operating expenses                                          |  |                          | 10,385 |   |                       |   | 6,260 |                    |  |   |      |   |  |   | 16,645 |  
|Corporate expenses                                                |  |                          | 1,480  |   |                       |   | 776   |                    |  |   |      |   |  |   | 2,256  |  
|Depreciation and amortization                                     |  |                          | 1,155  |   |                       |   | 2,207 |                    |  |   |      |   |  |   | 3,362  |  
|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  
|Operating income (loss)                                           |  |                          | 5,205  |   |                       |   | (213  | )                  |  |   |      |   |  |   | 4,992  |  
|Interest expense, net                                             |  |                          | 6,068  |   |                       |   |      |                    |  |   |      |   |  |   | 6,068  |  
|Write off of deferred finance costs due to extinguishment of debt |  |                          | 1,541  |   |                       |   |      |                    |  |   |      |   |  |   | 1,541  |  
|Other (income) expense                                            |  |                          | 156    |   |                       |   | (221  | )                  |  |   |      |   |  |   | (65    | )
|Equity in earnings of subsidiaries                                |  |                          | (8     | ) |                       |   |      |                    |  |   | 8     |   |  |   |       |  
|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  
|Income (loss) before provision for income taxes                   |  |                          | (2,552 | ) |                       |   | 8     |                    |  |   | (8    | ) |  |   | (2,552 | )
|Deferred tax benefit                                              |  |                          | (1,066 | ) |                       |   |      |                    |  |   |      |   |  |   | (1,066 | )
|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  
|Net income (loss) from continuing operations                      |  |                          | (1,486 | ) |                       |   | 8     |                    |  |   | (8    | ) |  |   | (1,486 | )
|Discontinued operations, net                                      |  |                          | 283    |   |                       |   |      |                    |  |   |      |   |  |   | 283    |  
|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  
|Net income/(loss) after taxes                                     |  | $                        | (1,203 | ) |                       | $ | 8     |                    |  | $ | (8    | ) |  | $ | (1,203 | )
|                                                                  |  |                          |        |   |                       |   |       |                    |  |   |       |   |  |   |        |  



14



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Statement of Operations

For the Six Months Ended June
30, 2005



|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  
|----------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------------------ |  | - | ----- | - |  | - | ------- | -
|                                                |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   | EliminatingEntries |  |   | Total |  
|Net revenue                                     |  | $                        | 35,263  |   |                       | $ | 19,598             |  | $ |      |   |  | $ | 54,861  |  
|Total operating expenses                        |  |                          | 21,660  |   |                       |   | 11,953             |  |   |      |   |  |   | 33,613  |  
|Corporate expenses                              |  |                          | 2,904   |   |                       |   | 1,986              |  |   |      |   |  |   | 4,890   |  
|Depreciation and amortization                   |  |                          | 2,648   |   |                       |   | 4,783              |  |   |      |   |  |   | 7,431   |  
|Local marketing agreement fees                  |  |                          | 98      |   |                       |   |                   |  |   |      |   |  |   | 98      |  
|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  
|Operating income                                |  | $                        | 7,953   |   |                       | $ | 876                |  | $ |      |   |  | $ | 8,829   |  
|Interest expense, net                           |  |                          | 12,985  |   |                       |   |                   |  |   |      |   |  |   | 12,985  |  
|Other expense                                   |  |                          | 2,589   |   |                       |   | 354                |  |   |      |   |  |   | 2,943   |  
|Equity in Earnings of subsidiaries              |  |                          | (522    | ) |                       |   |                   |  |   | 522   |   |  |   |        |  
|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  
|Income (loss) before provision for income taxes |  |                          | (7,099  | ) |                       |   | 522                |  |   | (522  | ) |  |   | (7,099  | )
|Deferred tax                                    |  |                          | 4,592   |   |                       |   |                   |  |   |      |   |  |   | 4,592   |  
|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  
|Net income (loss) from continuing operations    |  |                          | (11,691 | ) |                       |   | 522                |  |   | (522  | ) |  |   | (11,691 | )
|Discontinued operations, net                    |  |                          | 134     |   |                       |   |                   |  |   |      |   |  |   | 134     |  
|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  
|Net income/(loss) after taxes                   |  | $                        | (11,557 | ) |                       | $ | 522                |  | $ | (522  | ) |  | $ | (11,557 | )
|                                                |  |                          |         |   |                       |   |                    |  |   |       |   |  |   |         |  



NextMedia Operating,
Inc.

Supplemental Combining Statement of Operations

For the Six Months Ended June 30, 2004



|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------------ | ------ | - | --------------------- | - | ------ | ------------------ |  | - | ------ | - |  | - | ------ | -
|                                                                  |  | NextMediaOperating, Inc. |        |   | GuarantorSubsidiaries |   |        | EliminatingEntries |  |   | Total  |  
|Net revenue                                                       |  | $                        | 33,087 |   |                       | $ | 17,019 |                    |  | $ |       |   |  | $ | 50,106 |  
|Total operating expenses                                          |  |                          | 19,914 |   |                       |   | 11,908 |                    |  |   |       |   |  |   | 31,822 |  
|Corporate expenses                                                |  |                          | 2,810  |   |                       |   | 1,374  |                    |  |   |       |   |  |   | 4,184  |  
|Depreciation and amortization                                     |  |                          | 2,288  |   |                       |   | 4,403  |                    |  |   |       |   |  |   | 6,691  |  
|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  
|Operating income (loss)                                           |  |                          | 8,075  |   |                       |   | (666   | )                  |  |   |       |   |  |   | 7,409  |  
|Interest expense, net                                             |  |                          | 12,132 |   |                       |   |       |                    |  |   |       |   |  |   | 12,132 |  
|Write off of deferred finance costs due to extinguishment of debt |  |                          | 1,541  |   |                       |   |       |                    |  |   |       |   |  |   | 1,541  |  
|Other expense/(income)                                            |  |                          | 353    |   |                       |   | (4,240 | )                  |  |   |       |   |  |   | (3,887 | )
|Equity in earnings of subsidiaries                                |  |                          | (3,574 | ) |                       |   |       |                    |  |   | 3,574  |   |  |   |       |  
|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  
|Income (loss) before provision for income taxes                   |  |                          | (2,377 | ) |                       |   | 3,574  |                    |  |   | (3,574 | ) |  |   | (2,377 | )
|Deferred Tax                                                      |  |                          | (1,255 | ) |                       |   |       |                    |  |   |       |   |  |   | (1,255 | )
|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  
|Net income (loss) from continuing operations                      |  |                          | (1,122 | ) |                       |   | 3,574  |                    |  |   | (3,574 | ) |  |   | (1,122 | )
|Discontinued operations, net                                      |  |                          | 233    |   |                       |   |       |                    |  |   |       |   |  |   | 233    |  
|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  
|Net income/(loss) after taxes                                     |  | $                        | (889   | ) |                       | $ | 3,574  |                    |  | $ | (3,574 | ) |  | $ | (889   | )
|                                                                  |  |                          |        |   |                       |   |        |                    |  |   |        |   |  |   |        |  



15



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##### Table of Contents

NEXTMEDIA OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands)



NextMedia Operating, Inc.

Supplemental Combining Statement of Cash Flows

For the Six Months Ended June
30, 2005



|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|----------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ---- | ------------------ |  | ----- | - |  | - | ------- | -
|                                                |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |      | EliminatingEntries |  | Total |  
|Net Cash provided by operations                 |  | $                        | 836     |   |                       | $ | 546  |                    |  | $     |  |  | $ | 1,382   |  
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Cash Flows From Investing Activities            |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Purchase of equipment                           |  |                          | (1,835  | ) |                       |   | (399 | )                  |  |       |  |  |   | (2,234  | )
|Payments for acquisitions, net of cash acquired |  |                          | (26,537 | ) |                       |   |     |                    |  |       |  |  |   | (26,537 | )
|Proceeds from sale of properties                |  |                          | 196     |   |                       |   |     |                    |  |       |  |  |   | 196     |  
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Net cash used in investing activities           |  |                          | (28,176 | ) |                       |   | (399 | )                  |  |       |  |  |   | (28,575 | )
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Cash Flows From Financing Activities            |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Proceeds from revolving credit facilities       |  |                          | 33,000  |   |                       |   |     |                    |  |       |  |  |   | 33,000  |  
|Repayment of revolving credit facilities        |  |                          | (4,500  | ) |                       |   |     |                    |  |       |  |  |   | (4,500  | )
|Dividends to parent                             |  |                          | (300    | ) |                       |   |     |                    |  |       |  |  |   | (300    | )
|Payments of financing related costs             |  |                          | (753    | ) |                       |   |     |                    |  |       |  |  |   | (753    | )
|Other                                           |  |                          | (63     | ) |                       |   |     |                    |  |       |  |  |   | (63     | )
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Net cash provided by financing activities       |  |                          | 27,384  |   |                       |   |     |                    |  |       |  |  |   | 27,384  |  
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Net increase in cash                            |  |                          | 44      |   |                       |   | 147  |                    |  |       |  |  |   | 191     |  
|Cash at beginning of period                     |  |                          | 13,006  |   |                       |   | (746 | )                  |  |       |  |  |   | 12,260  |  
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  
|Cash at end of period                           |  | $                        | 13,050  |   |                       | $ | (599 | )                  |  | $     |  |  | $ | 12,451  |  
|                                                |  |                          |         |   |                       |   |      |                    |  |       |   |  |   |         |  



NextMedia Operating,
Inc.

Supplemental Combining Statement of Cash Flows

For the Six Months Ended June 30, 2004



|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|--------------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------ | ------------------ |  | ----- | - |  | - | ------- | -
|                                                    |  | NextMediaOperating, Inc. |         |   | GuarantorSubsidiaries |   |        | EliminatingEntries |  | Total |  
|Net Cash used in operations                         |  | $                        | (9,358  | ) |                       | $ | (2,208 | )                  |  | $     |  |  | $ | (11,566 | )
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Cash Flows From Investing Activities                |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Purchase of equipment                               |  |                          | (2,263  | ) |                       |   | (1,369 | )                  |  |       |  |  |   | (3,632  | )
|Payments for acquisitions, net of cash acquired     |  |                          | (22,228 | ) |                       |   |       |                    |  |       |  |  |   | (22,228 | )
|Proceeds from sale of properties                    |  |                          | 399     |   |                       |   | 3,352  |                    |  |       |  |  |   | 3,751   |  
|Interest rate swap termination proceeds             |  |                          | 1,600   |   |                       |   |       |                    |  |       |  |  |   | 1,600   |  
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Net cash provided by/(used in) investing activities |  |                          | (22,492 | ) |                       |   | 1,983  |                    |  |       |  |  |   | (20,509 | )
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Cash Flows From Financing Activities                |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Proceeds from revolving credit facilities           |  |                          | 39,000  |   |                       |   |       |                    |  |       |  |  |   | 39,000  |  
|Repayment of revolving credit facilities            |  |                          | (4,000  | ) |                       |   |       |                    |  |       |  |  |   | (4,000  | )
|Dividends to parent                                 |  |                          | (2,133  | ) |                       |   |       |                    |  |       |  |  |   | (2,133  | )
|Payments of financing related costs                 |  |                          | (427    | ) |                       |   |       |                    |  |       |  |  |   | (427    | )
|Other                                               |  |                          | (147    | ) |                       |   |       |                    |  |       |  |  |   | (147    | )
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Net cash provided financing activities              |  |                          | 32,293  |   |                       |   |       |                    |  |       |  |  |   | 32,293  |  
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Net increase/(decrease) in cash                     |  |                          | 443     |   |                       |   | (225   | )                  |  |       |  |  |   | 218     |  
|Cash at beginning of period                         |  |                          | 1,137   |   |                       |   | (430   | )                  |  |       |  |  |   | 707     |  
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  
|Cash at end of period                               |  | $                        | 1,580   |   |                       | $ | (655   | )                  |  | $     |  |  | $ | 925     |  
|                                                    |  |                          |         |   |                       |   |        |                    |  |       |   |  |   |         |  



16



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##### Table of Contents

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



Overview



Our business consists of two out-of-home media divisions: radio broadcasting and outdoor advertising. Our radio broadcasting business consists of radio stations for which
we provide programming and sell on-air advertising time. Our outdoor advertising business includes traditional outdoor advertising displays, such as bulletins and posters, 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 and national advertisers. Our radio division operating expenses consist primarily of employee salaries and commissions, programming expenses, advertising and promotional
expenses, rental for studio premises, rental of transmission tower space and music license royalty fees. We seek to control 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 upon
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 of each year. A radio stations operating results in any period also may be affected by advertising and promotional expenditures that do not
necessarily produce revenues in the period in which the expenditures are made.



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
installation of advertising frames, maintenance and shipping costs, printing of advertisements and production 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, relative to the demographics of the particular market and its location within that market. Our outdoor advertising display
contracts typically have terms ranging from one month 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 are large and generate a higher number of impressions than other outdoor products, advertising rates for bulletins are significantly higher than those for our other outdoor and alternative display
products.



Factors Affecting Comparability



We commenced operations in late-1999 when our predecessor by merger
completed its first acquisition. Our results of operations from period to period are not 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.



17



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##### Table of Contents

Results of Operations



The following table presents certain summary historical financial data in thousands of dollars and as a percentage of net revenues for the periods
indicated on a consolidated basis and for each of our out-of-home media divisions.



|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | - | ----- | ---- | - | ------ | - |  | ----- |  | - | ------ | - | ---- | ----- |  | - | ------- | - |  | -----
|                                                                                         |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                                                                         |  | 2004                        |        |                           | % |       | 2005 |   |        | % |  | 2004  |  |   | %      |   | 2005 |       |  | %
|                                                                                         |  | (dollars in thousands)     
|Consolidated Operating Data:                                                             |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Net revenue                                                                              |  | $                           | 27,255 |                           |   | 100.0 |      | $ | 30,730 |   |  | 100.0 |  | $ | 50,106 |   |      | 100.0 |  | $ | 54,861  |   |  | 100.0
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                             | 16,645 |                           |   | 61.1  |      |   | 17,850 |   |  | 58.1  |  |   | 31,822 |   |      | 63.5  |  |   | 33,613  |   |  | 61.3 
|Corporate expenses                                                                       |  |                             | 2,256  |                           |   | 8.3   |      |   | 2,271  |   |  | 7.4   |  |   | 4,184  |   |      | 8.4   |  |   | 4,890   |   |  | 8.9  
|Depreciation and amortization                                                            |  |                             | 3,362  |                           |   | 12.3  |      |   | 3,713  |   |  | 12.1  |  |   | 6,691  |   |      | 13.4  |  |   | 7,431   |   |  | 13.5 
|Local marketing agreement fees                                                           |  |                             |       |                           |   | 0.0   |      |   |       |   |  | 0.0   |  |   |       |   |      | 0.0   |  |   | 98      |   |  | 0.2  
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Operating income                                                                         |  |                             | 4,992  |                           |   | 18.3  |      |   | 6,896  |   |  | 22.4  |  |   | 7,409  |   |      | 14.8  |  |   | 8,829   |   |  | 16.1 
|Interest expense, net                                                                    |  |                             | 6,068  |                           |   |       |      |   | 6,555  |   |  |       |  |   | 12,132 |   |      |       |  |   | 12,985  |   |  |      
|Write-off of deferred finance costs due to extinguishment of debt                        |  |                             | 1,541  |                           |   |       |      |   |       |   |  |       |  |   | 1,541  |   |      |       |  |   |        |   |  |      
|Other (income) expense, net                                                              |  |                             | (65    | )                         |   |       |      |   | 2,427  |   |  |       |  |   | (3,887 | ) |      |       |  |   | 2,943   |   |  |      
|Income tax expense/(benefit)                                                             |  |                             | (1,066 | )                         |   |       |      |   | 2,316  |   |  |       |  |   | (1,255 | ) |      |       |  |   | 4,592   |   |  |      
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Net loss from continuing operations                                                      |  | $                           | (1,486 | )                         |   |       |      | $ | (4,402 | ) |  |       |  | $ | (1,122 | ) |      |       |  | $ | (11,691 | ) |  |      
|Discontinued operations, net                                                             |  |                             | 283    |                           |   |       |      |   | 77     |   |  |       |  |   | 233    |   |      |       |  |   | 134     |   |  |      
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Net loss                                                                                 |  | $                           | (1,203 | )                         |   |       |      | $ | (4,325 | ) |  |       |  | $ | (889   | ) |      |       |  | $ | (11,557 | ) |  |      
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Radio Broadcasting Operating Data:                                                       |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Net revenue                                                                              |  | $                           | 18,226 |                           |   | 100.0 |      | $ | 19,331 |   |  | 100.0 |  | $ | 33,087 |   |      | 100.0 |  | $ | 35,263  |   |  | 100.0
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                             | 10,384 |                           |   | 57.0  |      |   | 11,227 |   |  | 58.1  |  |   | 19,914 |   |      | 60.2  |  |   | 21,660  |   |  | 61.4 
|Depreciation and amortization                                                            |  |                             | 1,155  |                           |   | 6.3   |      |   | 1,323  |   |  | 6.8   |  |   | 2,288  |   |      | 6.9   |  |   | 2,648   |   |  | 7.5  
|Local marketing agreement fees                                                           |  |                             |       |                           |   | 0.0   |      |   |       |   |  | 0.0   |  |   |       |   |      | 0.0   |  |   | 98      |   |  | 0.9  
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Segment operating income                                                                 |  | $                           | 6,687  |                           |   | 36.7  |      | $ | 6,781  |   |  | 35.1  |  | $ | 10,885 |   |      | 32.9  |  | $ | 10,857  |   |  | 30.8 
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Outdoor Advertising Operating Data:                                                      |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Net revenue                                                                              |  | $                           | 9,029  |                           |   | 100.0 |      | $ | 11,399 |   |  | 100.0 |  | $ | 17,019 |   |      | 100.0 |  | $ | 19,598  |   |  | 100.0
|Market level expenses, exclusive of depreciation and amortization shown separately below |  |                             | 6,261  |                           |   | 69.3  |      |   | 6,623  |   |  | 58.1  |  |   | 11,908 |   |      | 70.0  |  |   | 11,953  |   |  | 61.0 
|Depreciation and amortization                                                            |  |                             | 2,207  |                           |   | 24.4  |      |   | 2,390  |   |  | 21.0  |  |   | 4,403  |   |      | 25.9  |  |   | 4,783   |   |  | 24.4 
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      
|Segment operating income                                                                 |  | $                           | 561    |                           |   | 6.2   |      | $ | 2,386  |   |  | 20.9  |  | $ | 708    |   |      | 4.2   |  | $ | 2,862   |   |  | 14.6 
|                                                                                         |  |                             |        |                           |   |       |      |   |        |   |  |       |  |   |        |   |      |       |  |   |         |   |  |      



Comparison of Three Months Ended
June 30, 2005 to Three Months Ended June 30, 2004



Net Revenue.Consolidated net revenues increased $3.5 million to $30.7 million in 2005 from $27.2 million in 2004. Radio net revenues increased $1.1 million to $19.3 million in 2005 from $18.2 million in 2004. Outdoor advertising net
revenues increased $2.4 million to $11.4 million in 2005 from $9.0 million in 2004. Of the consolidated net revenue increase, $749,195 was due to acquisition, net of dispositions, with the remaining $2.8 million increase attributable to organic
growth in the assets we owned and operated during the six months of 2005.



Market Level Expenses, exclusive of depreciation and amortization. Consolidated operating expenses increased $1.2 million to $17.8 million in 2005 from $16.6 million in 2004. Radio operating expenses increased
to $11.2 million in 2005 from $10.4 million in 2004. Radio operating expenses increased primarily due to the Wilmington, North Carolina acquisition. Outdoor advertising market



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level expenses increased $362,000 to $6.6 million in 2005 from $6.3 million in 2004 primarily as a result of the variable market level expenses associated
with the increased revenue.



Corporate Expenses.
Corporate expenses increased $15,000 in 2005 and as a percentage of net revenue, corporate expenses decreased from 8.3% to 7.4%.



Depreciation and Amortization.Consolidated depreciation and amortization increased $351,000 to $3.7 million in 2005 from $3.4 million in 2004.
Radio depreciation and amortization increased $168,000 to $1.3 million in 2005 from $1.2 million in 2004. Outdoor advertising depreciation and amortization increased $183,000 to $2.4 million in 2005 from $2.2 million in 2004. The increase in both
radio and outdoor depreciation and amortization was attributable to acquisitions during 2004 which resulted in the addition of depreciable fixed assets and definite-lived intangibles which are amortized over their useful lives.



Interest and Other Income (Expense) Net.Interest expense, net,
increased to $6.6 million in 2005 from $6.1 million in 2004 due to indebtedness incurred in connection with our acquisitions. Other income (expense), net increased to $2.4 million of expense in 2005 from $65,000 of income in 2004 primarily as a
result of a non-cash loss of $2.1 million on our interest rate swap arrangements.



Income Tax. We expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. Accordingly, we record deferred tax expense throughout the year to establish a
valuation allowance against net operating loss carry-forwards generated by amortization of indefinite-lived intangibles and goodwill that is deductible for tax purposes, but which is no longer subject to periodic amortization as a result of SFAS
142.



Discontinued Operations.In the second quarter of
2005, we entered into an agreement to sell the assets of radio stations KTHX-FM, KRZQ-FM, KJZS-FM and KURK-FM in Reno, Nevada and radio stations KLLL-FM, KMMX-FM, KONE-FM and KBTE-FM in Lubbock, Texas in exchange for approximately $34.0 million in
cash. We applied the provisions of SFAS 144, which requires that in a period in which a component of an entity has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall
report the results of operations of the component, including any gain or loss recognized, in discontinued operations. Selected financial information related to discontinued operations for the three-month periods ended June 30, 2004 and 2005 is as
follows (in thousands):



|                                      |  |                           |       |      |   |      
|------------------------------------- |  | ------------------------- | ----- | ---- | - | -----
|                                      |  | Three Months EndedJune 30
|                                      |  | 2004                      |       | 2005
|Net revenue                           |  | $                         | 1,960 |      | $ | 1,931
|Market level operating expense        |  |                           | 1,379 |      |   | 1,523
|Depreciation and amortization expense |  |                           | 62    |      |   | 95   
|Local marketing agreement fees        |  |                           | 30    |      |   | 30   
|                                      |  |                           |       |      |   |      
|Income before income taxes            |  |                           | 489   |      |   | 283  
|Income tax expense                    |  |                           | 206   |      |   | 206  
|                                      |  |                           |       |      |   |      
|Net income                            |  | $                         | 283   |      | $ | 77   
|                                      |  |                           |       |      |   |      



Net Loss.
Consolidated net loss increased $3.1 million resulting in a $4.3 million net loss in 2005 compared to $1.2 million of net loss in 2004 as a result of the factors described above.



Comparison of Six Months Ended June 30, 2005 to Six Months Ended June 30, 2004



Net Revenues.Consolidated net revenues increased $4.8 million to
$54.9 million in 2005 from $50.1 million in 2004. Radio net revenues increased $2.2 million to $35.3 million in 2005 from $33.1 million in 2004. Outdoor advertising net revenues increased $2.6 million to $19.6 million in 2005 from $17.0 million in
2004. Of the consolidated net revenue increase, $1.2 million was due to acquisition, net of dispositions, with the remaining $3.6 million increase attributable to organic growth in the assets we owned and operated during the six months of 2005.



Market Level Expenses.Consolidated market level
expenses increased $1.8 million to $33.6 million in 2005 from $31.8 million in 2004. Radio market level expenses increased $1.7 million to $21.7 million in 2005 from $20.0 million in 2004. Outdoor advertising market level expenses increased $45,000
to $12.0 million in 2005. These increases were attributable primarily to our completion of acquisitions in 2004. As a percentage of net revenues, consolidated market level expenses decreased from 63.5% to 61.3% due to increased revenue.



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Corporate Expenses. Corporate expenses increased $706,000 to $4.9 million in 2005 from $4.2
million in 2004. As a percentage of net revenues, corporate expenses increased from 8.4% to 8.9%.



Depreciation and Amortization.Consolidated depreciation and amortization increased $740,000 to $7.4 million in 2005 from $6.7 million in 2004.
Radio depreciation and amortization increased $360,000 to $2.6 million in 2005 from $2.3 million in 2004. Outdoor advertising depreciation and amortization increased $380,000 to $4.8 million in 2005 from $4.4 million in 2004. The increase in outdoor
depreciation and amortization was attributable to acquisitions during 2004 which resulted in the addition of depreciable fixed assets and definite-lived intangibles which are amortized over their useful lives.



Interest and Other Income (Expense) Net.Interest expense, net,
increased to $13.0 million in 2005 from $12.1 million in 2004 due to indebtedness incurred in connection with our acquisitions and slightly higher effective interest rates on our debt. Other income (expense), net increased to a $2.9 million loss in
2005 primarily as a result of a non-cash loss on interest rate swap arrangements and the absence in 2005 of a non-cash gain on our asset exchange in January 2004 and a gain in connection with the settlement of our arbitration with PNE Media, LLC in
2004.



Income Tax.We recorded deferred tax expense to
establish a valuation allowance for deferred tax assets created as we continue to expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. We do not have any current income taxes.



Discontinued Operations.In the second quarter of 2005, we entered
into an agreement to sell the assets of radio stations KTHX-FM, KRZQ-FM, KJZS-FM AND KURK-FM in Reno, Nevada and radio stations KLLL-FM, KMMX-FM, KONE-FM and KBTE-FM in Lubbock, Texas in exchange for approximately $34.0 million in cash. We applied
the provisions of SFAS 144, which requires that in a period in which a component of an entity has been disposed of or is classified as held for sale, the income statement of a business enterprise for current and prior periods shall report the
results of operations of the component, including any gain or loss recognized, in discontinued operations. Selected financial information related to discontinued operations for the six-month periods ended June 30, 2004 and 2005 is as follows (in
thousands):



|                                      |  |                         |       |      |   |      
|------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                      |  | Six Months EndedJune 30
|                                      |  | 2004                    |       | 2005
|Net revenue                           |  | $                       | 3,500 |      | $ | 3,633
|Market level operating expense        |  |                         | 2,675 |      |   | 2,855
|Depreciation and amortization expense |  |                         | 121   |      |   | 172  
|Local marketing agreement fees        |  |                         | 60    |      |   | 60   
|                                      |  |                         |       |      |   |      
|Income before income taxes            |  |                         | 644   |      |   | 546  
|Income tax expense                    |  |                         | 411   |      |   | 412  
|                                      |  |                         |       |      |   |      
|Net income                            |  | $                       | 233   |      | $ | 134  
|                                      |  |                         |       |      |   |      



Net Loss.
Consolidated net loss increased $10.7 million to $11.6 million in 2005 from $889,000 in 2004 as a result of the factors described above.



Liquidity and Capital Resources



Sources of Funds



Our cash and cash equivalents balance at June 30, 2005 was approximately $12.5 million compared to $12.3 million at December 31, 2004.



Net cash provided in operating activities was $1.4 million and net cash used
was $11.6 million for the six months ended June 30, 2005 and 2004, respectively. The decrease in net cash used in operating activities was due primarily to the timing of our semi-annual interest payments on our senior subordinated notes.



Net cash provided by financing activities was $27.4 million for the six
months ended June 30, 2005 compared to cash provided by financing activities of $32.3 million for the six months ended June 30, 2004. Net cash used in investing activities was $28.6 million and $20.5 million for the six months ended June 30, 2005
and 2004, respectively. These cash flows primarily reflect expenditures for acquisitions and capital expenditures.



Uses of Funds



We use a significant portion of our capital resources to consummate acquisitions. Through June 30, 2005, we funded our acquisitions from: (i) equity
capital contributions of approximately $354.0 million from our indirect parent, NextMedia Investors,



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funded by equity investments from several private investment funds and our senior management, (ii) aggregate net borrowings of approximately $261.1 million,
and (iii) cash from operations. We expect to obtain financing for future acquisitions through the incurrence of debt, additional under our Revolving Credit Facility equity contributions, internally generated funds or a combination of the foregoing.
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 ongoing liquidity requirements.



Capital expenditures in the six months ended June 30, 2005 on a GAAP basis
decreased to $2.4 million from $3.6 million for the six months ended June 30, 2004. The following table sets forth our capital expenditures for the six months ended June 30, 2005. Recurring capital expenditures are related to the maintenance of our
existing broadcast facilities and outdoor structures, that extends the useful life of the assets. Non-recurring capital expenditures are related primarily to radio signal upgrades and facility consolidations. Revenue producing capital expenditures
are related to the construction of new outdoor structures which management believes will generate future revenue.



|                           |  |                                |      
|-------------------------- |  | ------------------------------ | -----
|                           |  | Six Months Ended June 30, 2005
|                           |  | (in thousands)                
|Recurring                  |  | $                              | 1,867
|Non-recurring              |  |                                | 266  
|Revenue producing          |  |                                | 249  
|                           |  |                                |      
|Total capital expenditures |  | $                              | 2,382
|                           |  |                                |      



Credit Facility and
Senior Subordinated Notes



Our $75.0 million senior credit
facility (the Revolving Credit 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 Revolving Credit Facility, we must satisfy specified financial covenants, such as a maximum total leverage ratio, a maximum senior leverage ratio and a minimum ratio of consolidated EBITDA to consolidated net cash
interest expense. As of June 30, 2005, we were in compliance with all of these covenants.



After taking into account these restrictive covenants, as of June 30, 2005, we had approximately $11.9 million of borrowing capacity under our Revolving Credit Facility.



Borrowings under the Revolving Credit Facility bear interest (a) in the case
of loans with an interest rate based on the index rate (the Index Rate), the Index Rate plus an applicable margin or (b) in the case of loans with an interest rate based on the Libor rate (the LIBOR Rate), the LIBOR Rate plus
an applicable margin. The applicable margins are based on our total leverage ratio. On February 25, 2005 we amended the Revolving Credit Facility to reduce the applicable margins, and as a result, reduced our interest payments under the Revolving
Credit Facility. On August 11, 2005 we amended the Revolving Credit Facility to increase the total borrowing capacity to $125.0 million.



Our 10.75% Senior Subordinated Notes require us to make semi-annual interest payments of approximately $10.8 million on January 1 and July 1 of each year.
The indenture governing the notes contains certain restrictive covenants that, among other things, limit our ability to incur additional indebtedness and pay dividends. As of June 30, 2005, we were in compliance with these covenants.



We believe that cash from operations, together with available borrowings
under our Revolving Credit Facility, will be sufficient to permit us to meet our financial obligations and to fund our existing operations for at least the next twelve months.



Recent Accounting Pronouncements



In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations(FIN 47). FIN 47 is an interpretation of FASB Statement 143, Asset Retirement Obligations,which was issued in June 2001. According to FIN 47, uncertainty about the timing and (or) method of settlement because they
are conditional on a future event that may or may not be within the control of the entity should be factored into the measurement of the asset retirement obligation when sufficient information exists. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application of interim financial information is
permitted, but is not required. The adoption of FIN 47 is not expected to have a material impact on the Companys financial position or results of operation.



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In June 2005, the Emerging Issues Task Force (EITF) issued EITF 05-6, Determining the
Amortization Period of Leasehold Improvements(EITF 05-6). EITF 05-6 requires that assets recognized under capital leases generally be amortized in a manner consistent with the lessees normal depreciation policy except that the
amortization period is limited to the lease term (which includes renewal periods that are reasonably assured). EITF 05-6 also addresses the determination of the amortization period for leasehold improvements that are purchased subsequent to the
inception of the lease. Leasehold improvements acquired in a business combination or purchased subsequent to the inception of the lease should be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably
assured lease renewals as determined on the date of the acquisition of the leasehold improvement. The Company adopted EITF 05-6 on July 1, 2005 and the adoption did not materially impact its financial position or results of operations.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------



Interest Rate Risk.Our exposure to market risk is limited primarily to the fluctuating interest rates associated with our variable rate
indebtedness. At June 30, 2005, we had $63.0 million of variable rate indebtedness, representing 24% of total debt outstanding, at an average interest rate during the six months ended June 30, 2005 of 5.7%. Based on the average floating rate
borrowings outstanding during the six months ended June 30, 2005, a 100 basis-point change in LIBOR would have caused our monthly interest expense to change by approximately $41,000.



We became a party to an interest rate swap (the Swap) with an aggregate notional amount of $100.0 million in
March 2005. The Swap becomes effective June 30, 2006 and expires on December 31, 2009. Pursuant to the Swap, we will pay a fixed rate of interest on the notional amount and receive a floating rate of interest on the notional amount.



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 as of the end of the period covered by this report on Form 10-Q, our
principal executive officer and 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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PART II



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



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



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------



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.
|------- | ---------------------------------



|            |  |                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                       
|31.1*       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                
|            | 
|31.2*       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1*       |  | 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.
|            | 
|32.2*       |  | 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
|- | --------------



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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.



| |  |                       |  |                                        |  |     |  |                                                                                                                          
| |  | --------------------- |  | -------------------------------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------
| |  |                       |  | NEXTMEDIA OPERATING, INC. (Registrant)
| |  |                       |  |                                       
| |  | DATE: August 15, 2005 |  |                                        |  | By: |  | /s/ STEVEN DINETZ                                                                                                        
| |  |                       |  |                                        |  |     |  | Steven Dinetz, Director, President and Chief Executive Officer (Principal Executive Officer)                             
| |  |                       |  |                                       
| |  | DATE: August 15, 2005 |  |                                        |  | By: |  | /s/ SEAN R. STOVER                                                                                                       
| |  |                       |  |                                        |  |     |  | Sean R. Stover, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)



Exhibits



|            |  |                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                       
|31.1*       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                
|            | 
|31.2*       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1*       |  | 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.
|            | 
|32.2*       |  | 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
|- | --------------



24