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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC
20549

FORM 10-Q

(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, 2002 | or
|------------------------------ | ------------- | --
|                               |               |   

|o | 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 | 
|---------------------- | 
|                       | 

---

|Delaware                                                    |  | 84-154397          
|----------------------------------------------------------- |  | -------------------
|                                                            |  |                    
|(State or other jurisdiction of                             |  | (IRS Employer      
|incorporation or organization)                              |  | Identification No.)
|                                                            |  |                    
|6312 S. Fiddlers Green Circle, Suite 360EEnglewood 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)

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

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

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TABLE OF CONTENTS

PART I

|Item 1.     Unaudited Financial Statements                                                        
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Item 2.     
Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                  
|Item 3.     
Quantitative and Qualitative Disclosure About Market Risk                            
|                                                                                                  
|PART II                                                                                           
|                                                                                                  
|Item 1.     
Legal Proceedings                                                                    
|Item 2.     
Changes in Securities                                                                
|Item 3.     
Defaults Upon Senior Securities                                                      
|Item 4.     
Submission of Matters to a Vote of Security Holders                                  
|Item 5.     
Other Information                                                                    
|Item 6.     
Exhibits and Reports on Form 8-K                                                     

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

|                                                                                                                                      | December 31, |         | June 30,
|------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------- | --------
|                                                                                                                                      | 2001         |         | 2002    
|                                                                                                                                      |              |         |         
|Assets                                                                                                                                |              |         |         
|                                                                                                                                      |              |         |         
|Current assets:                                                                                                                       |              |         |         
|Cash and cash equivalents                                                                                                             | $            | 30,501  |         
|Short-term investments                                                                                                                |              | -       |         
|Accounts receivable, less allowance for doubtful accounts of $1,209 at December 31, 2001    and $1,131 at June 30, 2002, respectively |              | 13,604  |         
|Prepaid expenses and other current assets                                                                                             |              | 2,129   |         
|                                                                                                                                      |              |         |         
|Total current assets                                                                                                                  |              | 46,234  |         
|                                                                                                                                      |              |         |         
|Property and equipment, net                                                                                                           |              | 40,844  |         
|Other assets                                                                                                                          |              | 10,576  |         
|Other intangibles, net                                                                                                                |              | 1,169   |         
|Goodwill, net                                                                                                                         |              | 148,297 |         
|FCC licenses, net                                                                                                                     |              | 252,544 |         
|Assets held for sale                                                                                                                  |              | -       |         
|                                                                                                                                      |              |         |         
|                                                                                                                                      |              |         |         
|Total assets                                                                                                                          | $            | 499,664 |         
|                                                                                                                                      |              |         |         
|                                                                                                                                      |              |         |         
|Liabilities and stockholders equity                                                                                                  |              |         |         
|                                                                                                                                      |              |         |         
|Current liabilities:                                                                                                                  |              |         |         
|Accounts payable                                                                                                                      | $            | 2,284   |         
|Accrued expenses                                                                                                                      |              | 15,116  |         
|Deferred revenue                                                                                                                      |              | 676     |         
|Other current liabilities                                                                                                             |              | 9       |         
|                                                                                                                                      |              |         |         
|Total current liabilities                                                                                                             |              | 18,085  |         
|Long-term debt                                                                                                                        |              | 197,102 |         
|Deferred tax liability (Note 2)                                                                                                       |              | -       |         
|Other long-term liabilities                                                                                                           |              | 1,846   |         
|                                                                                                                                      |              |         |         
|Total liabilities                                                                                                                     |              | 217,033 |         
|                                                                                                                                      |              |         |         
|Commitments and contingencies (Note 7)                                                                                                |              |         |         
|Common stock, $0.01 par value; 3,000 shares authorized;                                                                               |              |         |         
|3,000 and 3,000 shares issued and outstanding, respectively                                                                           |              | 1       |         
|Additional paid-in capital                                                                                                            |              | 297,244 |         
|Accumulated deficit                                                                                                                   |              | (14,614 | )       
|                                                                                                                                      |              |         |         
|Total stockholders equity                                                                                                            |              | 282,631 |         
|                                                                                                                                      |              |         |         
|                                                                                                                                      |              |         |         
|Total liabilities and stockholders equity                                                                                            | $            | 499,664 |         
|                                                                                                                                      |              |         |         

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

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

|                                                                                 | Three Months Ended |        | Six Months Ended
|-------------------------------------------------------------------------------- | ------------------ | ------ | ----------------
|                                                                                 | June 30,           |        | June 30,        
|                                                                                 |                    |        |                 
|                                                                                 | 2001               |        | 2002            
|                                                                                 |                    |        |                 
|                                                                                 |                    |        |                 
|Gross revenue                                                                    | $                  | 18,095 |                 
|Less: agency commissions                                                         |                    | 1,231  |                 
|                                                                                 |                    |        |                 
|Net revenue                                                                      |                    | 16,864 |                 
|                                                                                 |                    |        |                 
|Operating expenses                                                               |                    | 10,433 |                 
|Corporate expenses                                                               |                    | 2,037  |                 
|Depreciation and amortization                                                    |                    | 2,862  |                 
|Local marketing agreement fees                                                   |                    | -      |                 
|                                                                                 |                    |        |                 
|Total operating expenses                                                         |                    | 15,332 |                 
|                                                                                 |                    |        |                 
|Operating income (loss)                                                          |                    | 1,532  |                 
|                                                                                 |                    |        |                 
|Other income (expense):                                                          |                    |        |                 
|Interest expense, net                                                            |                    | (2,151 | )               
|Other income (expense)                                                           |                    | -      |                 
|                                                                                 |                    |        |                 
|                                                                                 |                    |        |                 
|Income (loss) from continuing operations before income taxes                     |                    | (619   | )               
|Income taxes                                                                     |                    | 45     |                 
|                                                                                 |                    |        |                 
|Income (loss) from continuing operations                                         |                    | (664   | )               
|Discontinued operations (note 3):                                                |                    |        |                 
|Loss from discontinued operations (including loss on disposal of $3,272 in 2002) |                    | (248   | )               
|                                                                                 |                    |        |                 
|Net loss                                                                         | $                  | (912   | )               
|                                                                                 |                    |        |                 

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

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

|                                                                            | Six Months Ended
|--------------------------------------------------------------------------- | ----------------
|                                                                            | June 30,        
|                                                                            |                 
|                                                                            | 2001            
|                                                                            |                 
|Cash flows from operating activities:                                       |                 
|Net loss                                                                    | $               
|Adjustments to reconcile net loss to net cash used in operating activities: |                 
|Depreciation and amortization                                               |                 
|Non-cash compensation                                                       |                 
|Provision for bad debt                                                      |                 
|Non-cash interest expense                                                   |                 
|Unrealized (gain)/loss on interest rate swaps                               |                 
|Provision for deferred taxes                                                |                 
|Loss on pending sale and other dispositions                                 |                 
|Changes in assets and liabilities, net of effects of acquisitions:          |                 
|Deferred Revenue                                                            |                 
|Accounts receivable                                                         |                 
|Prepaid expenses and other assets                                           |                 
|Accounts payable and accrued expenses                                       |                 
|                                                                            |                 
|Net cash used in operating activities                                       |                 
|Cash flows from investing activities:                                       |                 
|Acquisitions, net of cash acquired                                          |                 
|Proceeds from sale of assets                                                |                 
|Purchase of short-term investments                                          |                 
|Capital expenditures                                                        |                 
|                                                                            |                 
|Net cash used in investing activities                                       |                 
|Cash flows from financing activities:                                       |                 
|Proceeds from senior credit facilities                                      |                 
|Payments on senior credit facilities                                        |                 
|Payments of financing costs                                                 |                 
|Capital contributions from Parent                                           |                 
|Other                                                                       |                 
|Increase in seller working capital                                          |                 
|                                                                            |                 
|Net cash provided by (used in) financing activities                         |                 
|Net increase (decrease) in cash                                             |                 
|Cash and cash equivalent at beginning of period                             |                 
|                                                                            |                 
|Cash and cash equivalents at end of period                                  | $               
|                                                                            |                 
|Supplemental Cash Flow Information:                                         |                 
|Cash payments during the period for interest                                | $               
|                                                                            |                 

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

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

1.    INTERIM FINANCIAL DATA AND SIGNIFICANT ACCOUNTING
POLICIES

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

Short-term Investments

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

2.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

In April 2002, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (Statement 145). Statement 145 rescinds
FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt and FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Statement 145 also rescinds FASB Statement No. 44, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Statement 145 also
amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Early adoption of Statement 145 is encouraged and may be as of the beginning of the
fiscal year or as of the beginning of the interim period in which the statement was issued.

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

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

3.     ACQUISITIONS AND DISPOSITIONS

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

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

4.     PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

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

5.     INTANGIBLE ASSETS AND GOODWILL

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

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|                                | Six Months Ended |       
|------------------------------- | ---------------- | ------
|                                | June 30, 2001    |       
|                                |                  |       
|                                | (in thousands)   |       
|Adjusted Net Income (Loss)      |                  |       
|Reported Net Loss               | $                | (3,736
|Add Back: Goodwill Amortization |                  | 354   
|Add Back: License Amortization  |                  | 3,197 
|Tax Impact                      |                  | (8,218
|                                |                  |       
|Adjusted Net Loss               | $                | (8,403
|                                |                  |       

Definite-lived Intangibles

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

|                       | December 31, 2001 |       | June 30, 2002
|---------------------- | ----------------- | ----- | -------------
|                       |                   |       |              
|                       | Gross Carrying    |       | Accumulated  
|                       | Amount            |       | Amortization 
|                       |                   |       |              
|                       | (in thousands)   
|Non-compete agreements | $                 | 1,872 |              
|Other                  |                   | 99    |              
|                       |                   |       |              
|Total                  | $                 | 1,971 |              
|                       |                   |       |              

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

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

Indefinite-lived Intangibles and Goodwill

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

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6.    ACCRUED EXPENSES

Accrued expenses consist of the
following:

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

7.    COMMITMENTS AND CONTINGENCIES

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

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

8.    DEBT AND EQUITY COMMITMENT

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

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

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

9.    SEGMENT DATA

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

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

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

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

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

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

|                                             | Three months ended |         |   | Six months ended |  
|-------------------------------------------- | ------------------ | ------- | - | ---------------- | -
|                                             | June 30,           |         |   | June 30,         |  
|                                             |                    |         |   |                  |  
|                                             | 2001               |         |   | 2002             |  
|                                             |                    |         |   |                  |  
|                                             | (in thousands)    
|Net revenue:                                 |                    |         |   |                  |  
|Radio Broadcasting                           | $                  | 15,080  |   |                  | $
|Outdoor Advertising                          |                    | 1,784   |   |                  |  
|                                             |                    |         |   |                  |  
|Consolidated                                 |                    | 16,864  |   |                  |  
|                                             |                    |         |   |                  |  
|Operating expenses:                          |                    |         |   |                  |  
|Radio Broadcasting                           |                    | 9,309   |   |                  |  
|Outdoor Advertising                          |                    | 1,124   |   |                  |  
|                                             |                    |         |   |                  |  
|Consolidated                                 |                    | 10,433  |   |                  |  
|                                             |                    |         |   |                  |  
|BCF:                                         |                    |         |   |                  |  
|Radio Broadcasting                           |                    | 5,771   |   |                  |  
|Outdoor Advertising                          |                    | 660     |   |                  |  
|                                             |                    |         |   |                  |  
|Consolidated                                 |                    | 6,431   |   |                  |  
|Corporate expenses                           |                    | 2,037   |   |                  |  
|Depreciation and amortization                |                    | 2,862   |   |                  |  
|Local marketing agreement fees               |                    |        |   |                  |  
|                                             |                    |         |   |                  |  
|Operating income (loss)                      |                    | 1,532   |   |                  |  
|Interest expense, net                        |                    | (2,151  | ) |                  |  
|Other income (expense)                       |                    |        |   |                  |  
|                                             |                    |         |   |                  |  
|                                             |                    |         |   |                  |  
|Loss from continuing operations before taxes | $                  | (619    | ) |                  | $
|                                             |                    |         |   |                  |  
|Total assets:                                |                    |         |   |                  |  
|Radio Broadcasting                           | $                  | 309,301 |   |                  | $
|Outdoor Advertising                          |                    | 25,919  |   |                  |  
|                                             |                    |         |   |                  |  
|Consolidated                                 | $                  | 335,220 |   |                  | $
|                                             |                    |         |   |                  |  

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10.  SUPPLEMENTAL GUARANTOR INFORMATION

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

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

|                                           | NextMedia       |         | Guarantor    |  | Eliminating |         |   |       |   |         
|------------------------------------------ | --------------- | ------- | ------------ |  | ----------- | ------- | - | ----- | - | --------
|                                           | Operating, Inc. |         | Subsidiaries |  | Entries     |         |   | Total |  
|                                           |                 |         |              |  |             |         |  
|                                           |                 |         |              |  |             |         |   |       |   |         
|Cash                                       | $               | 8,395   |              |  | $           | (729    | ) |       | $ |        
|Short Term Investments                     |                 | 9,478   |              |  |             |        |   |       |   |        
|Accounts Receivable                        |                 | 10,251  |              |  |             | 4,094   |   |       |   |        
|Prepaid Assets & Other Current Assets      |                 | 538     |              |  |             | 1,737   |   |       |   |        
|                                           |                 |         |              |  |             |         |   |       |   |         
|                                           |                 |         |              |  |             |         |   |       |   |         
|Total Current Assets                       |                 | 28,662  |              |  |             | 5,101   |   |       |   |        
|Fixed Assets                               |                 | 24,198  |              |  |             | 17,415  |   |       |   |        
|Investment in Subsidiaries                 |                 | 406,260 |              |  |             |        |   |       |   | (406,260
|Other Assets                               |                 | 14,440  |              |  |             | 723     |   |       |   | (2,973  
|FCC Licenses & Other Intangibles           |                 | 13,380  |              |  |             | 393,686 |   |       |   |        
|Assets Held For Sale                       |                 | 527     |              |  |             | 4,924   |   |       |   |        
|                                           |                 |         |              |  |             |         |   |       |   |         
|                                           |                 |         |              |  |             |         |   |       |   |         
|Total Assets                               | $               | 487,467 |              |  | $           | 421,849 |   |       | $ | (409,233
|                                           |                 |         |              |  |             |         |   |       |   |         
|Accounts Payable                           | $               | 985     |              |  | $           | 368     |   |       |   |        
|Accrued Expenses                           |                 | 13,119  |              |  |             | 3,099   |   |       |   |        
|Deferred Revenue                           |                 | 88      |              |  |             | 733     |   |       |   |        
|Other Current Liabilities                  |                 | 11      |              |  |             | 4,005   |   |       |   | (2,973  
|                                           |                 |         |              |  |             |         |   |       |   |         
|                                           |                 |         |              |  |             |         |   |       |   |         
|Total Current Liabilities                  |                 | 14,203  |              |  |             | 8,205   |   |       |   | (2,973  
|Notes Payable                              |                 | 197,189 |              |  |             |        |   |       |   |        
|Other Long Term Liabilities                |                 | 18,361  |              |  |             | 7,384   |   |       |   |        
|                                           |                 |         |              |  |             |         |   |       |   |         
|Total Liabilities                          | $               | 229,753 |              |  |             | 15,589  |   |       |   | (2,973  
|Additional Paid In Capital                 |                 | 297,500 |              |  |             | 405,359 |   |       |   | (405,359
|Accumulated Deficit                        |                 | (39,786 | )            |  |             | 901     |   |       |   | (901    
|                                           |                 |         |              |  |             |         |   |       |   |         
|Stockholder's Equity                       | $               | 257,714 |              |  | $           | 406,260 |   |       | $ | (406,260
|                                           |                 |         |              |  |             |         |   |       |   |         
|Total Liabilities and Stockholder's Equity | $               | 487,467 |              |  | $           | 421,849 |   |       | $ | (409,233
|                                           |                 |         |              |  |             |         |   |       |   |         

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

|                                          | NextMedia       |        | Guarantor    |  | Eliminating |        |   | 
|----------------------------------------- | --------------- | ------ | ------------ |  | ----------- | ------ | - | 
|                                          | Operating, Inc. |        | Subsidiaries |  | Entries     | Total 
|                                          |                 |        |              |  |             |       
|                                          |                 |        |              |  |             |        |   | 
|Net Revenue                               | $               | 16,817 |              |  | $           | 6,811  |   | 
|Total Operating Expenses                  |                 | 10,121 |              |  |             | 5,004  |   | 
|Corporate Expenses                        |                 | 1,465  |              |  |             | 772    |   | 
|Depreciation and Amortization             |                 | 879    |              |  |             | 433    |   | 
|                                          |                 |        |              |  |             |        |   | 
|Operating income (loss)                   | $               | 4,352  |              |  | $           | 602    |   | 
|Interest Expense, net                     |                 | (5,567 | )            |  |             |       |   | 
|Other Income                              |                 | 1,343  |              |  |             | (2     | ) | 
|Equity in Earnings of Sub                 |                 | (2,672 | )            |  |             |       |   | 
|                                          |                 |        |              |  |             |        |   | 
|Income (loss) before provision for income |                 |        |              |  |             |        |   | 
|taxes                                     |                 | (2,544 | )            |  |             | 600    |   | 
|Income Taxes                              |                 | (2,629 | )            |  |             |       |   | 
|                                          |                 |        |              |  |             |        |   | 
|Net income (loss) from continuing         |                 |        |              |  |             |        |   | 
|operations                                | $               | (5,173 | )            |  | $           | 600    |   | 
|Loss on discontinued operations           |                 | (45    | )            |  |             | (3,272 | ) | 
|                                          |                 |        |              |  |             |        |   | 
|Net Income (Loss) after taxes             | $               | (5,218 | )            |  | $           | (2,672 | ) | 

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

|                                          | NextMedia       |        | Guarantor    |  | Eliminating |        |   | 
|----------------------------------------- | --------------- | ------ | ------------ |  | ----------- | ------ | - | 
|                                          | Operating, Inc. |        | Subsidiaries |  | Entries     | Total 
|                                          |                 |        |              |  |             |       
|Net Revenue                               | $               | 15,080 |              |  | $           | 1,784  |   | 
|Total Operating Expenses                  |                 | 9,309  |              |  |             | 1,124  |   | 
|Corporate Expenses                        |                 | 1,285  |              |  |             | 752    |   | 
|Depreciation and Amortization             |                 | 1,144  |              |  |             | 1,718  |   | 
|                                          |                 |        |              |  |             |        |   | 
|Operating income (loss)                   | $               | 3,342  |              |  | $           | (1,810 | ) | 
|Interest Expense, net                     |                 | (2,151 | )            |  |             |       |   | 
|Other Income                              |                 |       |              |  |             |       |   | 
|Equity in Earnings of Sub                 |                 | (1,863 | )            |  |             |       |   | 
|                                          |                 |        |              |  |             |        |   | 
|Income (loss) before provision for income |                 |        |              |  |             |        |   | 
|taxes                                     |                 | (672   | )            |  |             | (1,810 | ) | 
|Income Taxes                              |                 | (45    | )            |  |             |       |   | 
|                                          |                 |        |              |  |             |        |   | 
|Net income (loss) from continuing         |                 |        |              |  |             |        |   | 
|operations                                | $               | (717   | )            |  | $           | (1,810 | ) | 
|Loss on discontinued operations           |                 | (195   | )            |  |             | (53    | ) | 
|                                          |                 |        |              |  |             |        |   | 
|Net Income (Loss) after taxes             | $               | (912   | )            |  | $           | (1,863 | ) | 

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

|                                          | NextMedia       |         |   | Guarantor    |   |        | Eliminating |  |   |       |       | 
|----------------------------------------- | --------------- | ------- | - | ------------ | - | ------ | ----------- |  | - | ----- | ----- | 
|                                          | Operating, Inc. |         |   | Subsidiaries |   |        | Entries     |  |   |       | Total
|                                          |                 |         |   |              |   |        |             |  |   |       |      
|                                          |                 |         |   |              |   |        |             |  |   |       |       | 
|Net Revenue                               | $               | 30,103  |   |              | $ | 12,343 |             |  | $ |      |       | 
|Total Operating Expenses                  |                 | 19,074  |   |              |   | 9,244  |             |  |   |      |       | 
|Corporate Expenses                        |                 | 2,834   |   |              |   | 1,494  |             |  |   |      |       | 
|Depreciation and Amortization             |                 | 1,742   |   |              |   | 811    |             |  |   |      |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |      
|Operating income (loss)                   | $               | 6,453   |   |              | $ | 794    |             |  | $ |      |       | 
|Interest Expense, net                     |                 | (11,150 | ) |              |   | 1      |             |  |   |      |       | 
|Other Income                              |                 | 675     |   |              |   | (2     | )           |  |   |      |       | 
|Equity in Earnings of Sub                 |                 | (2,478  | ) |              |   |       |             |  |   | 2,478 |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |      
|Income (loss) before provision for income |                 |         |   |              |   |        |             |  |   |       |       | 
|taxes                                     |                 | (6,500  | ) |              |   | 793    |             |  |   | 2,478 |       | 
|Income Taxes                              |                 | (18,469 | ) |              |   |       |             |  |   |      |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |      
|Net income (loss) from continuing         |                 |         |   |              |   |        |             |  |   |       |       | 
|operations                                | $               | (24,969 | ) |              | $ | 793    |             |  | $ | 2,478 |       | 
|Loss on discontinued operations           |                 | (202    | ) |              |   | (3,272 | )           |  |   |      |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |      
|Net Income (Loss) after taxes             | $               | (25,171 | ) |              | $ | (2,478 | )           |  | $ | 2,478 |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |       | 
|                                          |                 |         |   |              |   |        |             |  |   |       |       | 

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

|                                          | NextMedia       |        |   | Guarantor    |   |        | Eliminating |  |   |       |       | 
|----------------------------------------- | --------------- | ------ | - | ------------ | - | ------ | ----------- |  | - | ----- | ----- | 
|                                          | Operating, Inc. |        |   | Subsidiaries |   |        | Entries     |  |   |       | Total
|                                          |                 |        |   |              |   |        |             |  |   |       |      
|                                          |                 |        |   |              |   |        |             |  |   |       |       | 
|Net Revenue                               | $               | 27,109 |   |              | $ | 3,715  |             |  | $ |      |       | 
|Total Operating Expenses                  |                 | 17,904 |   |              |   | 2,066  |             |  |   |      |       | 
|Corporate Expenses                        |                 | 2,666  |   |              |   | 1,390  |             |  |   |      |       | 
|Depreciation and Amortization             |                 | 2,162  |   |              |   | 3,405  |             |  |   |      |       | 
|Local marketing agreement fees            |                 | 15     |   |              |   |       |             |  |   |      |       | 
|                                          |                 |        |   |              |   |        |             |  |   |       |      
|Operating income (loss)                   | $               | 4,362  |   |              | $ | (3,146 | )           |  | $ |      |       | 
|Interest Expense, net                     |                 | (4,580 | ) |              |   |       |             |  |   |      |       | 
|Other Income                              |                 |       |   |              |   |       |             |  |   |      |       | 
|Equity in Earnings of Sub                 |                 | (3,252 | ) |              |   |       |             |  |   | 3,252 |       | 
|                                          |                 |        |   |              |   |        |             |  |   |       |      
|Income (loss) before provision for income |                 |        |   |              |   |        |             |  |   |       |       | 
|taxes                                     |                 | (3,470 | ) |              |   | (3,146 | )           |  |   | 3,252 |       | 
|Income Taxes                              |                 | (90    | ) |              |   |       |             |  |   |      |       | 
|                                          |                 |        |   |              |   |        |             |  |   |       |      
|Net income (loss) from continuing         |                 |        |   |              |   |        |             |  |   |       |       | 
|operations                                | $               | (3,560 | ) |              | $ | (3,146 | )           |  | $ | 3,252 |       | 
|Loss on discontinued operations           |                 | (176   | ) |              |   | (106   | )           |  |   |      |       | 
|                                          |                 |        |   |              |   |        |             |  |   |       |      
|Net Income (Loss) after taxes             | $               | (3,736 | ) |              | $ | (3,252 | )           |  | $ | 3,252 |       | 

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

|                                          | NextMedia       |         |   | Guarantor    |   |        | Eliminating |  |       |  
|----------------------------------------- | --------------- | ------- | - | ------------ | - | ------ | ----------- |  | ----- | -
|                                          | Operating, Inc. |         |   | Subsidiaries |   |        | Entries     |  | Total |  
|                                          |                 |         |   |              |   |        |             |  |       |  
|                                          |                 |         |   |              |   |        |             |  |       |  
|Net Cash provided by (used in) operations | $               | (5,390  | ) |              | $ | 1,752  |             |  | $     | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|                                          |                 |         |   |              |   |        |             |  |       |  
|Cash Flows From Investing Activities      |                 |         |   |              |   |        |             |  |       |  
|Acquisitions, net of cash acquired        |                 | (7,554  | ) |              |   |       |             |  |       | 
|Proceeds from sale of assets              |                 | 1,213   |   |              |   |       |             |  |       | 
|Purchase of short term investments        |                 | (9,478  | ) |              |   |       |             |  |       | 
|Capital expenditures                      |                 | (1,086  | ) |              |   | (2,059 | )           |  |       | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|Net cash used in investing activities     |                 | (16,905 | ) |              |   | (2,059 | )           |  |       | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|                                          |                 |         |   |              |   |        |             |  |       |  
|Cash Flows From Financing Activities      |                 |         |   |              |   |        |             |  |       |  
|Payments of financing costs               |                 | (463    | ) |              |   |       |             |  |       | 
|Capital contributions from Parent         |                 | 185     |   |              |   |       |             |  |       | 
|Increase in seller working capital        |                 | (20     | ) |              |   | 120    |             |  |       | 
|Other                                     |                 | (55     | ) |              |   |       |             |  |       | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|Net cash used in financing activities     |                 | (353    | ) |              |   | 120    |             |  |       | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|                                          |                 |         |   |              |   |        |             |  |       |  
|Net decrease in cash                      |                 | (22,648 | ) |              |   | (187   | )           |  |       | 
|Cash at beginning of period               |                 | 31,044  |   |              |   | (543   | )           |  |       | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|Cash at end of period                     | $               | 8,396   |   |              | $ | (730   | )           |  | $     | 
|                                          |                 |         |   |              |   |        |             |  |       |  
|                                          |                 |         |   |              |   |        |             |  |       |  

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

|                                          | NextMedia       |         |   | Guarantor    |   |      | Eliminating |  |       |  
|----------------------------------------- | --------------- | ------- | - | ------------ | - | ---- | ----------- |  | ----- | -
|                                          | Operating, Inc. |         |   | Subsidiaries |   |      | Entries     |  | Total |  
|                                          |                 |         |   |              |   |      |             |  |       |  
|                                          |                 |         |   |              |   |      |             |  |       |  
|Net Cash provided by (used in) operations | $               | (870    | ) |              | $ | (281 | )           |  | $     | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|                                          |                 |         |   |              |   |      |             |  |       |  
|Cash Flows From Investing Activities      |                 |         |   |              |   |      |             |  |       |  
|Acquisitions, net of cash acquired        |                 | (13,896 | ) |              |   |     |             |  |       | 
|Capital expenditures                      |                 | (2,345  | ) |              |   | (281 | )           |  |       | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|Net cash used in investing activities     |                 | (16,241 | ) |              |   | (281 | )           |  |       | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|                                          |                 |         |   |              |   |      |             |  |       |  
|Cash Flows From Financing Activities      |                 |         |   |              |   |      |             |  |       |  
|Proceeds from revolving credit facilities |                 | 18,000  |   |              |   |     |             |  |       | 
|Repayment of revolving credit facilities  |                 | (8,961  | ) |              |   |     |             |  |       | 
|Payments of financing costs               |                 | (780    | ) |              |   |     |             |  |       | 
|Capital contributions from Parent         |                 | 9,238   |   |              |   |     |             |  |       | 
|Other                                     |                 |        |   |              |   |     |             |  |       | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|Net cash used in financing activities     |                 | 17,497  |   |              |   |     |             |  |       | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|                                          |                 |         |   |              |   |      |             |  |       |  
|Net decrease in cash                      |                 | 386     |   |              |   | (562 | )           |  |       | 
|Cash at beginning of period               |                 | 325     |   |              |   | 511  |             |  |       | 
|                                          |                 |         |   |              |   |      |             |  |       |  
|Cash at end of period                     | $               | 711     |   |              | $ | (51  | )           |  | $     | 
|                                          |                 |         |   |              |   |      |             |  |       |  

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

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

General

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

Radio Broadcasting Division

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

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

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

The radio broadcast industry typically experiences seasonal revenue fluctuations due primarily to fluctuations in advertising expenditures by local and national
advertisers, with revenues typically being the lowest in the first calendar quarter and the highest in the second and fourth calendar quarters of each year. A radio stations operating results in any period also may be affected by advertising
and promotional expenditures that do not necessarily produce revenues in the period in which the expenditures are made.

During the second quarter of 2002, we entered into a contract to
sell the assets of radio stations WYOO-FM, WPCF-AM, WQJM-FM, WILN-FM and WYYX-FM in exchange for approximately $5.5 million in cash. The assets to be sold consist primarily of FCC licenses, broadcast equipment and accounts receivable. We have
recorded a loss of approximately $3.3 million in discontinued operations in the second quarter for the difference between the carrying value of this reporting unit and the expected proceeds of the sale, less expected selling costs. We have
classified the remaining carrying value of the assets to be sold as held for sale on the balance sheet and the results of

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operations for this reporting unit have been classified as discontinued operation in all periods presented. During the three- and six-month periods ended June
30, 2002, these assets generated net revenues of approximately $381,000 and $730,000, respectively. Management decided to sell these assets because we believe there are alternative uses of capital which may provide a higher return on
investment.

Outdoor Advertising Division

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

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

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

Factors Affecting Comparability

We commenced operations in late-1999 when we completed our first acquisition. Our results of operations from
period to period are not directly comparable because of the impact of the various acquisitions and dispositions that we have completed as well as our rapid build-up in personnel in anticipation of additional acquisitions. Moreover, our expected
growth through acquisitions is likely to continue to limit the comparability of our results of operations.

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

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##### Table of Contents

RESULTS OF OPERATIONS

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

|                                          | Three Months Ended |        | Six Months Ended
|----------------------------------------- | ------------------ | ------ | ----------------
|                                          | June 30,           |        | June 30,        
|                                          |                    |        |                 
|                                          | 2001               |        | %               
|                                          |                    |        |                 
|Consolidated Operating Data:              |                    |        |                 
|Net Revenues                              | $                  | 16,864 |                 
|Operating expenses                        |                    | 10,433 |                 
|Corporate expenses                        |                    | 2,037  |                 
|Depreciation and amortization             |                    | 2,862  |                 
|Local marketing agreement fees            |                    | -      |                 
|                                          |                    |        |                 
|                                          |                    |        |                 
|Operating income (loss)                   |                    | 1,532  |                 
|Interest and other income (expense), net. |                    | (2,151 | )               
|Income tax expense                        |                    | (45    | )               
|Discontinued operations                   |                    | (248   | )               
|                                          |                    |        |                 
|Net loss                                  | $                  | (912   | )               
|                                          |                    |        |                 
|                                          |                    |        |                 
|Other Data:                               |                    |        |                 
|Broadcast cash flow                       | $                  | 6,431  |                 
|EBITDA                                    | $                  | 4,394  |                 
|                                          |                    |        |                 
|Radio Broadcasting Operating Data:        |                    |        |                 
|Net revenues                              | $                  | 15,080 |                 
|Operating expenses                        |                    | 9,309  |                 
|Depreciation and amortization             |                    | 2,702  |                 
|Local marketing agreement fees            |                    | -      |                 
|                                          |                    |        |                 
|Operating income                          | $                  | 3,069  |                 
|                                          |                    |        |                 
|                                          |                    |        |                 
|Other Data:                               |                    |        |                 
|Broadcast cash flow                       | $                  | 5,771  |                 
|                                          |                    |        |                 
|Outdoor Advertising Operating Data:       |                    |        |                 
|Net revenues                              | $                  | 1,784  |                 
|Operating expenses                        |                    | 1,124  |                 
|Depreciation and amortization             |                    | 160    |                 
|                                          |                    |        |                 
|Operating income (loss)                   | $                  | 500    |                 
|                                          |                    |        |                 
|                                          |                    |        |                 
|Other Data:                               |                    |        |                 
|Broadcast cash flow                       | $                  | 660    |                 

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

Net
Revenues. Consolidated net revenues increased $6.7 million to $23.6 million for the three months ended June 30, 2002 from $16.9 million for the prior year period. Radio net revenues increased $1.7 million to $16.8 million for the three months
ended June 30, 2002 from $15.1 million for the prior year period. Outdoor advertising net revenues increased $5.0 million to $6.8 million for the three months ended June 30, 2002 from $1.8 million for the prior year period. The increases in outdoor
advertising were attributable primarily to acquisitions completed in the second half of 2001, while growth in radio was driven by continued implementation of our sales strategies focusing on local advertisers and improved advertising market
conditions.

Operating Expenses. Consolidated operating expenses increased $4.7 million to $15.1 million for the three months ended June 30, 2002 from $10.4 million for the prior
year period. Radio operating expenses increased $812,000 to $10.1 million for the three months ended June 30, 2002 from $9.3 million for the prior year period. Outdoor advertising operating expenses increased $3.9 million to $5.0 million for the
three months ended June 30, 2002 from $1.1 million for the prior year period. The increase in outdoor advertising expenses was attributable primarily to acquisitions completed in the second half of 2001, while growth in radio costs was primarily
attributable to higher selling expenses associated with revenue growth. As a percentage of net revenues, consolidated operating expenses for the three months ended June 30, 2002 increased from 61.9% to 64.0% as a result of the acquisition of outdoor
properties in the second half of 2001.

Corporate Expenses. Corporate expenses increased $200,000 to $2.2 million for the three months ended June 30, 2002 from $2.0 million for
the prior year period. This increase was attributable primarily to additional staff, office and administrative costs made necessary by the higher volume of business and administration resulting from acquisitions in the second half of
2001.

Other Operating Expenses. Consolidated depreciation and amortization decreased $1.6 million to $1.3 million for the three months ended June 30, 2002. Radio depreciation
and amortization decreased $1.8 million to $879,000 for the three months ended June 30, 2002. Outdoor advertising depreciation and amortization increased $273,000 to $433,000 for the three months ended June 30, 2002. The decrease in radio was
attributable primarily to the adoption of Statement of Financial Accounting Standards No. 142, which required that goodwill and intangible assets with indefinite useful lives no longer be amortized. The increase in outdoor was attributable primarily
to acquisitions in the second half of 2001, offset by the impact of the adoption of SFAS No. 142.

Interest and Other Expense. Other expense, consisting primarily of interest
expense, increased $2.2 million to $4.2 million for the three months ended June 30, 2002 from $2.2 million for the prior year period, attributable primarily to indebtedness incurred in connection with our acquisitions. Other expense for the three
months ended June 30, 2002 also includes a non-cash gain of approximately $1.6 million to record our swap arrangement at fair value.

Provision for Income taxes. We had a net
operating loss during the three months ended June 30, 2001 and June 30, 2002. We recorded additional tax expense of $2.6 million, of which $2.3 million relates to establishing a valuation allowance against net operating loss carry-forwards generated
during the three months ended June 30, 2002, resulting from amortization of goodwill and broadcast licenses that is deductible for tax purposes but is no longer amortized in the financial statements.

Net Loss. As a result of the factors described above, our consolidated net loss increased $4.3 million to $5.2 million for the three months ended June 30, 2002 compared to $912,000 for the prior year
period.

Broadcast Cash Flow. As a result of the factors described above, consolidated broadcast cash flow increased $2.1 million to $8.5 million for the three months ended June
30, 2002 from $6.4 million for the 2001 period. Radio broadcast cash flow increased $925,000 to $6.7 million for the three months ended June 30, 2002 from $5.8 million for the 2001 period. Outdoor advertising broadcast cash flow increased $1.1
million to $1.8 million for the three months ended June 30, 2002 from $660,000 for the 2001 period. The consolidated broadcast cash flow margin declined slightly to 36.0% for the three months ended June 30, 2002 compared to 38.1% for the 2001
period, as a result of operating expense factors described above.

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EBITDA. As a result of the factors described above, EBITDA increased $1.9 million to $6.3 million for the three months ended June 30, 2002 from
$4.4 million in the 2001 period. EBITDA margin increased to 26.5% for the three months ended June 30, 2002 from 26.1% for the 2001 period, primarily because the increased revenue from acquisitions did not require a proportionate increase in
corporate expenses.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Net
Revenues. Consolidated net revenues increased $11.6 million to $42.4 million for the six months ended June 30, 2002 from $30.8 million for the prior year period. Radio net revenues increased $3.0 million to $30.1 million for the six months ended
June 30, 2002 from $27.1 million for the prior year period. Outdoor advertising net revenues increased $8.6 million to $12.3 million for the six months ended June 30, 2002 from $3.7 million for the prior year period. The increases in outdoor
advertising were attributable primarily to acquisitions completed in the second half of 2001, while growth in radio was driven by continued implementation of our sales strategies focusing on local advertisers and improved advertising market
conditions.

Operating Expenses. Consolidated operating expenses increased $8.3 million to $28.3 million for the six months ended June 30, 2002 from $20.0 million for the prior
year period. Radio operating expenses increased $1.2 million to $19.1 million for the six months ended June 30, 2002 from $17.9 million for the prior year period. Outdoor advertising operating expenses increased $7.1 million to $9.2 million for the
six months ended June 30, 2002 from $2.1 million for the prior year period. The increases in outdoor were attributable primarily to acquisitions completed in the second half of 2001, while growth in radio costs was primarily attributable to higher
selling expenses associated with revenue growth. As a percentage of net revenues, consolidated operating expenses for the six months ended June 30, 2002 increased from 64.8% to 66.7% as a result of the acquisition of outdoor properties in the second
half of 2001.

Corporate Expenses. Corporate expenses increased $272,000 to $4.3 million for the six months ended June 30, 2002 from $4.1 million for the prior year period. This
increase was attributable primarily to additional staff, office and administrative costs made necessary by the higher volume of business and administration resulting from acquisitions in the second half of 2001.

Other Operating Expenses. Consolidated depreciation and amortization decreased $3.0 million to $2.6 million for the six months ended June 30, 2002. Radio depreciation and amortization decreased $3.5 million to
$1.7 million for the six months ended June 30, 2002. Outdoor advertising depreciation and amortization increased $496,000 to $811,000 for the six months ended June 30, 2002. The decrease in radio was attributable primarily to the adoption of
Statement of Financial Accounting Standards No. 142, which required that goodwill and intangible assets with indefinite useful lives no longer be amortized. The increase in outdoor was attributable primarily to acquisitions in the second half of
2001, offset by the impact of the adoption of SFAS No. 142.

Interest and Other Expense. Other expense, consisting primarily of interest expense, increased $5.9 million to $10.5
million for the six months ended June 30, 2002 from $4.6 million for the prior year period attributable primarily to indebtedness incurred in connection with our acquisitions. Other expense for the six months ended June 30, 2002 also includes a
non-cash gain of approximately $673,000 to record our swap arrangement at fair value.

Provision for Income taxes. We had a net operating loss during the six months ended June
30, 2001 and June 30, 2002. On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which eliminates the annual amortization of goodwill and certain long-lived assets with indefinite lives, such as FCC
broadcast licenses. In connection with the suspension of amortization of these assets, we currently expect that our deferred tax liabilities will not reverse within our net operating loss carry-forward period. Accordingly, on January 1, 2002, we
recorded a one-time non-cash charge of $8.3 million to deferred tax expenses to establish a valuation allowance against its deferred tax assets. We recorded additional tax expense of $10.2 million, of which $9.6 million relates to establishing a
valuation allowance against net operating loss carry-forwards generated during the six months ended June 30, 2002, resulting primarily from amortization of goodwill and broadcast licenses that is deductible for tax purposes, but is no longer
amortized in the financial statements. We do not expect the adoption of SFAS 142 to have any impact on our Companys cash flow.

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Net Loss. As a result of the factors described above, our consolidated net loss increased $21.5 million to $25.2 million for the six months ended June
30, 2002 compared to $3.7 million for the prior period.

Broadcast Cash Flow. As a result of the factors described above, consolidated broadcast cash flow increased $3.2 million
to $14.1 million for the six months ended June 30, 2002 from $10.9 million for the 2001 period. Radio broadcast cash flow increased $1.8 million to $11.0 million for the six months ended June 30, 2002 from $9.2 million for the 2001 period. Outdoor
advertising broadcast cash flow increased $1.5 million to $3.1 million for the six months ended June 30, 2002 from $1.6 million for the 2001 period. The consolidated broadcast cash flow margin declined slightly to 33.3% for the six months ended June
30, 2002 compared to 35.2% for the 2001 period, as a result of operating expense factors described above.

EBITDA. As a result of the factors described above, EBITDA increased
$3.0 million to $9.8 million for the six months ended June 30, 2002 from $6.8 million in the 2001 period. EBITDA margin increased to 23.1% for the six months ended June 30, 2002 from 22.1% for the 2001 period, primarily because the increased revenue
from acquisitions did not require a proportionate increase in corporate expenses.

Liquidity and Capital Resources

Our cash and short term investments balance at June 30, 2002 was approximately $17.1 million compared to $30.5 million at December 31, 2001. Approximately $6.1 million of the balance at December 31, 2001 was used to close acquisitions of
outdoor advertising properties in the first half of 2002. The remaining decrease in cash from December 31, 2001 to June 30, 2002 primarily resulted from our $10.8 million interest payment on January 2, 2002 offset by cash generated from
operations.

Net cash used in operating activities for the six months ended June 30, 2002 was $3.6 million compared to $1.2 million in the previous period. The increase was due
primarily to the timing of payments of interest on our borrowings and increased working capital requirements due to our outdoor acquisition in July 2001. Cash used in investing activities for the six months ended June 30, 2002 decreased to $9.5
million from $16.5 million primarily due to decreased acquisition activity in the current period. Cash used in financing activities for the six months ended June 30, 2002 was $233,000 compared to cash provided of $17.5 million in the previous
period, with the change due primarily to decreased financing needs for acquisition activity in the current period and financing fees.

Sources and Uses of Funds

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

Capital expenditures, excluding acquisitions, in the first half of 2002 increased from approximately
$2.6 million in the first half of 2001 to $3.1 million in same period of 2002. Capital expenditures increased due the increase in the number of billboards and displays owned in the first half of 2002 as compared to the first half of 2001.

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##### Table of Contents

|                       | First Half 2002 Capital Expenditures
|---------------------- | ------------------------------------
|                       |                                     
|                       | Radio                               
|                       |                                     
|                       | (in thousands)                      
|Recurring              | $                                   
|Non-recurring projects |                                     
|Revenue producing      |                                     
|                       |                                     
|                       | $                                   
|                       |                                     

We use a significant portion of our capital resources to consummate acquisitions. From January 1, 2002
through June 30, 2002, we funded our acquisitions from capital contributions from NextMedia Investors, funded by equity investments from several private investment funds. We expect to obtain financing for future acquisitions through the incurrence
of debt, additional equity contributions, internally generated funds or a combination of the foregoing. We have $55.0 million of committed but undrawn private equity funds remaining at August 14, 2002. There can be no assurance, however, that
external financing will be available to us on terms we consider favorable or that cash flow from operations will be sufficient to fund our acquisition strategy.

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

We believe that cash flow from
operations, as well as the proceeds from securities offerings made from time to time and additional drawings on our $55.0 million of committed private equity funds, will be sufficient to fund all required future interest and principal payments on
the credit facility and the notes and anticipated capital expenditures.

Effective June 25, 2002, we amended our senior credit facility to delay the effective date of certain financial
covenants. The amended facility continues to provide for aggregate borrowings of $100.0 million and contains customary restrictive covenants that, among other things, limit our ability to incur additional indebtedness and liens in connection
therewith, pay dividends and make capital expenditures above specified limits. Under the senior credit facility, we must satisfy specified financial covenants, such as a maximum leverage ratio and a minimum ratio of consolidated EBITDA to
consolidated net cash interest expense. As of June 30, 2002, we were in compliance with all these covenants. There are no borrowings outstanding under the senior credit facility and no amounts were available for borrowing under the senior credit
facility as of August 14, 2002.

Item 3. Market Risk

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

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

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PART II

Item 1. Legal Proceedings

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

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

|99.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    
|99.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On July 15, 2002, we filed a Current Report on Form 8-K announcing that we had entered into an amendment to our senior credit
facility, a copy of which was filed as an exhibit to the Current Report.

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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.

|                      |     | NEXT MEDIA OPERATING, INC.       
|--------------------- | --- | ---------------------------------
|                      |     | (Registrant)                     
|                      |     |                                  
|DATE: AUGUST 14, 2002 | By: | /s/ Steven Dinetz                
|                      |     | Steven Dinetz, Chief Executive   
|                      |     | Officer and President            
|                      |     | (Principal Executive Officer)    
|                      |     |                                  
|                      |     |                                  
|DATE: AUGUST 14, 2002 | By: | /s/ Sean R. Stover               
|                      |     | Sean R. Stover, Chief Financial  
|                      |     | Officer                          
|                      |     | (Principal Financial Officer)    
|                      |     |                                  
|                      |     |                                  
|DATE: AUGUST 14, 2002 | By: | /s/ Schuyler Hansen              
|                      |     | Schuyler Hansen, Chief Accounting
|                      |     | Officer and Treasurer            
|                      |     | (Principal Accounting Officer)   

23