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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the transition period from
             to



Commission file number 000-28395



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INTEREP NATIONAL RADIO SALES, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|New York                                                       |  | 13-1865151                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|100 Park Avenue, New York, New York                            |  | 10017                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          



(212) 916-0700

(Registrants Telephone Number, Including Area Code)



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



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



The number of shares of the registrants Common Stock outstanding as of the close of business on November 10, 2004, was 6,637,716 shares of Class A
Common Stock, and 4,214,425 shares of Class B Common Stock.



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PART I

FINANCIAL INFORMATION



Item 1.
FINANCIAL STATEMENTS



INTEREP NATIONAL RADIO SALES, INC.



CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)



|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                                                                                      |  | September 30, 2004 |         |   | December 31, 2003 |  
|                                                                                                                                                                                                                                                      |  | (unaudited)        |         |   |                   |  
|ASSETS                                                                                                                                                                                                                                                |  |                    |         |   |                   |   |         |  
|Current assets:                                                                                                                                                                                                                                       |  |                    |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                             |  | $                  | 15,023  |   |                   | $ | 7,661   |  
|Receivables, less allowance for doubtful accounts of $754 and $808, respectively                                                                                                                                                                      |  |                    | 21,685  |   |                   |   | 27,585  |  
|Representation contract buyouts receivable                                                                                                                                                                                                            |  |                    | 400     |   |                   |   | 437     |  
|Current portion of deferred representation contract costs                                                                                                                                                                                             |  |                    | 13,866  |   |                   |   | 15,225  |  
|Prepaid expenses and other current assets                                                                                                                                                                                                             |  |                    | 1,205   |   |                   |   | 1,107   |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Total current assets                                                                                                                                                                                                                                  |  |                    | 52,179  |   |                   |   | 52,015  |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Fixed assets, net                                                                                                                                                                                                                                     |  |                    | 3,705   |   |                   |   | 5,050   |  
|Deferred representation contract costs                                                                                                                                                                                                                |  |                    | 35,865  |   |                   |   | 44,830  |  
|Representation contract buyouts receivable                                                                                                                                                                                                            |  |                    | 646     |   |                   |   | 31      |  
|Investments and other assets                                                                                                                                                                                                                          |  |                    | 5,504   |   |                   |   | 6,315   |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Total assets                                                                                                                                                                                                                                          |  | $                  | 97,899  |   |                   | $ | 108,241 |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                                                                                                                                 |  |                    |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                                                                                                  |  |                    |         |   |                   |   |         |  
|Accounts payable and accrued expenses                                                                                                                                                                                                                 |  | $                  | 25,836  |   |                   | $ | 20,670  |  
|Accrued interest                                                                                                                                                                                                                                      |  |                    | 2,475   |   |                   |   | 4,950   |  
|Representation contract buyouts payable                                                                                                                                                                                                               |  |                    | 5,245   |   |                   |   | 7,431   |  
|Accrued employee-related liabilities                                                                                                                                                                                                                  |  |                    | 2,643   |   |                   |   | 3,313   |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                                                                                                             |  |                    | 36,199  |   |                   |   | 36,364  |  
|Long-term debt                                                                                                                                                                                                                                        |  |                    | 99,000  |   |                   |   | 103,000 |  
|Representation contract buyouts payable                                                                                                                                                                                                               |  |                    | 3,627   |   |                   |   | 4,779   |  
|Other noncurrent liabilities                                                                                                                                                                                                                          |  |                    | 2,393   |   |                   |   | 3,880   |  
|                                                                                                                                                                                                                                                      |  |                   
|Shareholders deficit:                                                                                                                                                                                                                                |  |                    |         |   |                   |   |         |  
|4% Series A cumulative convertible preferred stock, $0.01 par value400,000 shares authorized, 118,598 and 114,037 shares issued and
outstanding at September 30, 2004 and December 31, 2003, respectively (aggregate liquidation preference$11,859) |  |                    | 1       |   |                   |   | 1       |  
|Class A common stock, $0.01 par value20,000,000 shares authorized, 6,626,270 and 6,189,460 shares issued and outstanding at September
30, 2004 and December 31, 2003, respectively                                                                   |  |                    | 66      |   |                   |   | 62      |  
|Class B common stock, $0.01 par value10,000,000 shares authorized, 4,225,871 and 4,058,699 shares issued and outstanding at September
30, 2004 and December 31, 2003, respectively                                                                   |  |                    | 42      |   |                   |   | 40      |  
|Additional paid-in-capital                                                                                                                                                                                                                            |  |                    | 52,330  |   |                   |   | 51,149  |  
|Accumulated deficit                                                                                                                                                                                                                                   |  |                    | (95,759 | ) |                   |   | (91,034 | )
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Total shareholders deficit                                                                                                                                                                                                                           |  |                    | (43,320 | ) |                   |   | (39,782 | )
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  
|Total liabilities and shareholders deficit                                                                                                                                                                                                           |  | $                  | 97,899  |   |                   | $ | 108,241 |  
|                                                                                                                                                                                                                                                      |  |                    |         |   |                   |   |         |  



The accompanying Notes
to Unaudited Interim Consolidated Financial Statements are an integral part of these financial statements.



2



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INTEREP NATIONAL RADIO SALES, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ---- | --------------------------------------- | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                  |  | For the Three Months Ended September 30, |        |      | For the Nine Months Ended September 30, |        
|                                                                                  |  | 2004                                     |        | 2003 |                                         |         | 2004 |  |   | 2003   |  
|Commission revenues                                                               |  | $                                        | 18,556 |      | $                                       | 23,009  |      |  | $ | 56,077 |   |  | $ | 64,183  |  
|Contract termination revenue                                                      |  |                                          | 18,844 |      |                                         | 42      |      |  |   | 20,008 |   |  |   | 617     |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Total revenues                                                                    |  |                                          | 37,400 |      |                                         | 23,051  |      |  |   | 76,085 |   |  |   | 64,800  |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Operating expenses:                                                               |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Selling expenses                                                                  |  |                                          | 15,964 |      |                                         | 16,275  |      |  |   | 46,614 |   |  |   | 47,541  |  
|General and administrative expenses                                               |  |                                          | 3,576  |      |                                         | 3,382   |      |  |   | 10,972 |   |  |   | 10,202  |  
|Depreciation and amortization expense                                             |  |                                          | 4,829  |      |                                         | 17,228  |      |  |   | 15,045 |   |  |   | 28,406  |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Total operating expenses                                                          |  |                                          | 24,369 |      |                                         | 36,885  |      |  |   | 72,631 |   |  |   | 86,149  |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Operating income (loss)                                                           |  |                                          | 13,031 |      |                                         | (13,834 | )    |  |   | 3,454  |   |  |   | (21,349 | )
|Interest expense, net                                                             |  |                                          | 2,634  |      |                                         | 4,404   |      |  |   | 7,952  |   |  |   | 9,952   |  
|Other expense                                                                     |  |                                          |       |      |                                         | 500     |      |  |   |       |   |  |   | 500     |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Income (loss) before provision for income taxes                                   |  |                                          | 10,397 |      |                                         | (18,738 | )    |  |   | (4,498 | ) |  |   | (31,801 | )
|Provision for income taxes                                                        |  |                                          | 35     |      |                                         | 64      |      |  |   | 227    |   |  |   | 241     |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                                                                 |  |                                          | 10,362 |      |                                         | (18,802 | )    |  |   | (4,725 | ) |  |   | (32,042 | )
|Preferred stock dividend                                                          |  |                                          | 119    |      |                                         | 114     |      |  |   | 350    |   |  |   | 354     |  
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Net income (loss) applicable to common shareholders                               |  | $                                        | 10,243 |      | $                                       | (18,916 | )    |  | $ | (5,075 | ) |  | $ | (32,396 | )
|                                                                                  |  |                                          |        |      |                                         |         |      |  |   |        |   |  |   |         |  
|Basic and fully diluted income (loss) per share applicable to common shareholders |  | $                                        | 0.94   |      | $                                       | (1.85   | )    |  | $ | (0.48  | ) |  | $ | (3.16   | )





The accompanying Notes to Unaudited Interim Consolidated Financial Statements are an integral part of these statements.



3



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INTEREP NATIONAL RADIO SALES, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                |  |                                         |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                |  | For the Nine Months Ended September 30, |        
|                                                                                |  | 2004                                    |         |   | 2003 |  
|Cash flows from operating activities:                                           |  |                                         |         |   |      |   |         |  
|Net loss                                                                        |  | $                                       | (4,725  | ) |      | $ | (32,042 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                         |         |   |      |   |         |  
|Depreciation and amortization                                                   |  |                                         | 15,045  |   |      |   | 28,406  |  
|Noncash interest expense                                                        |  |                                         |        |   |      |   | 1,688   |  
|                                                                                |  |                                        
|Changes in assets and liabilities:                                              |  |                                         |         |   |      |   |         |  
|Receivables                                                                     |  |                                         | 5,900   |   |      |   | 8,071   |  
|Representation contract buyouts receivable                                      |  |                                         | (578    | ) |      |   | 268     |  
|Prepaid expenses and other current assets                                       |  |                                         | (93     | ) |      |   | 7       |  
|Other noncurrent assets                                                         |  |                                         | (202    | ) |      |   | (534    | )
|Accounts payable and accrued expenses                                           |  |                                         | 5,678   |   |      |   | 2,002   |  
|Accrued interest                                                                |  |                                         | (2,475  | ) |      |   | (2,597  | )
|Accrued employee-related liabilities                                            |  |                                         | (670    | ) |      |   | (331    | )
|Other noncurrent liabilities                                                    |  |                                         | (1,487  | ) |      |   | 487     |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                                         | 16,393  |   |      |   | 5,425   |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Cash flows from investing activities:                                           |  |                                         |         |   |      |   |         |  
|Additions to fixed assets                                                       |  |                                         | (817    | ) |      |   | (1,966  | )
|Increase in other investments                                                   |  |                                         | (5      | ) |      |   |        |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Net cash used in investing activities                                           |  |                                         | (822    | ) |      |   | (1,966  | )
|                                                                                |  |                                         |         |   |      |   |         |  
|Cash flows from financing activities:                                           |  |                                         |         |   |      |   |         |  
|Station representation contract payments                                        |  |                                         | (5,289  | ) |      |   | (8,904  | )
|Gross borrowings on credit facility                                             |  |                                         | 21,650  |   |      |   |        |  
|Gross repayments on credit facility                                             |  |                                         | (25,650 | ) |      |   |        |  
|Repayment of prior credit facility                                              |  |                                         |        |   |      |   | (10,000 | )
|Issuance of Class B common stock                                                |  |                                         | 1,080   |   |      |   |        |  
|Net borrowings on new credit facility, net of financing costs                   |  |                                         |        |   |      |   | 7,609   |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Net cash used in financing activities                                           |  |                                         | (8,209  | ) |      |   | (11,295 | )
|                                                                                |  |                                         |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                            |  |                                         | 7,362   |   |      |   | (7,836  | )
|Cash and cash equivalents, beginning of period                                  |  |                                         | 7,661   |   |      |   | 18,114  |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                        |  | $                                       | 15,023  |   |      | $ | 10,278  |  
|                                                                                |  |                                         |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                              |  |                                         |         |   |      |   |         |  
|Cash paid during the period for:                                                |  |                                         |         |   |      |   |         |  
|Interest                                                                        |  | $                                       | 10,146  |   |      | $ | 10,661  |  
|Income taxes                                                                    |  |                                         | 227     |   |      |   | 241     |  
|Prepayment penalty on term loan                                                 |  |                                         |        |   |      |   | 500     |  
|                                                                                |  |                                        
|Non-cash investing and financing activities:                                    |  |                                         |         |   |      |   |         |  
|Station representation contracts acquired                                       |  | $                                       | 2,106   |   |      | $ | 3,237   |  
|Preferred stock dividend                                                        |  |                                         | 350     |   |      |   | 354     |  



The accompanying Notes
to Unaudited Interim Consolidated Financial Statements are an integral part of these statements.



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share information)



1. Summary of Significant Accounting Policies



Principles of Consolidation



The consolidated
financial statements include the accounts of Interep National Radio Sales, Inc. (Interep), together with its subsidiaries (collectively, the Company or we), and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have
been condensed or omitted. All significant intercompany transactions and balances have been eliminated.



The consolidated financial statements as of September 30, 2004 are unaudited; however, in the opinion of management, such statements include all
adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto
included in our Consolidated Financial Statements for the year ended December 31, 2003, which are available upon request, at our website, www.interep.com, or at the Securities and Exchange Commission website, www.sec.gov. Due to the seasonal
nature of our business, the results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2004.



Comprehensive (Income) Loss



For the three and nine months ended September 30, 2004 and 2003, our
comprehensive income (loss) was equal to the respective net income (loss) for each of the periods presented.



Revenue Recognition



We
are a national representation (rep) firm serving radio broadcast clients and certain internet service providers throughout the United States. Commission revenues are derived from sales of advertising time for radio stations under
representation contracts. Commissions and fees are recognized in the month the advertisement is broadcast. In connection with its unwired network business, we collect fees for unwired network radio advertising and, after deducting its commissions,
remit the fees to the respective radio stations. In instances when we are not legally obligated to pay a station or service provider until the corresponding receivable is paid, fees payable to stations have been offset against the related receivable
from advertising agencies in the accompanying consolidated balance sheets. We record all commission revenues on a net basis. Commissions are recognized based on the standard broadcast calendar that ends on the last Sunday in each reporting period.
The broadcast calendars for the three and nine months ended September 30, 2004 and 2003 each had 13 and 39 weeks.



Representation Contract Termination Revenue and Contract Acquisition Costs



Our station representation contracts usually renew automatically from year to year unless either party provides written
notice of termination at least twelve months prior to the next automatic renewal date. In accordance with industry practice, in lieu of termination, an arrangement is normally made for the purchase of such contracts by a successor representative
firm. The purchase price paid by the successor representation firm is generally based upon the historic commission income projected over the remaining contract period plus two months. Income earned from the sale of station representation contracts
(contract termination revenue) is recognized on the effective date of the buyout agreement. Costs of obtaining station representation contracts are deferred and amortized over the life of the new contract. Such amortization is included in the
accompanying



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in thousands, except share information)



consolidated statements of operations as a component of depreciation and amortization expense. Amounts which are to be amortized during the next year are
included as current assets in the accompanying consolidated balance sheets. We review the realizability of these deferred costs on a quarterly basis. From time to time, we have paid inducements to extend the life of contracts with its radio groups.
These inducement payments are recorded as deferred costs and expensed in the period benefited.



Loss Per Share



Basic
loss per share applicable to common shareholders for each of the respective periods has been computed by dividing the net loss by the weighted average number of common shares outstanding during the period, amounting to 10,852,141 and 10,248,159 for
the three months ended September 30, 2004 and 2003, and 10,508,057 and 10,248,159 for the nine months ended September 30, 2004 and 2003. Diluted earnings per share applicable to common shareholders reflects the potential dilution that could occur if
the outstanding options to purchase common stock were exercised, utilizing the treasury stock method, and also assumes conversion of outstanding convertible preferred stock into shares of common stock at the stated rate of conversion (Note 3). For
the three and nine month periods ended September 30, 2004 and 2003, the exercise of outstanding options would have an anti-dilutive effect and therefore have been excluded from the calculation.



Restructuring and Severance Charges



During 2003, we offered an early retirement program, which was accepted by
17 people, including four executives, to reduce future compensation costs. This resulted in approximately $3,000 of termination benefits to be paid over an extended period of time, approximately $2,740 of which was recorded during 2003 at net
present value. SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities requires us to record this liability at fair value as of the time the liability was incurred. At December 31, 2003, the accompanying consolidated
balance sheet includes the accrual relating to the restructuring program of $2,230. We accrued an additional $174 at September 30, 2004 for an additional termination. During the nine months ended September 30, 2004, we paid approximately $1,195 of
termination benefits under these programs, and also accreted approximately $118 of interest. As of September 30, 2004, the remaining accrual was $1,327, of which $1,182 is included in accrued employee related liabilities and $145 is included in
other noncurrent liabilities.



Use of Estimates



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Segment Reporting



SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information requires us to report segment financial information consistent
with the presentation made to our management for decision making purposes. We are managed as one segment and all revenues are derived solely from representation operations and related activities.



6



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in thousands, except share information)



Stock-Based Compensation



We have elected to continue to account for our employee stock-based compensation plan using the intrinsic value method, as
prescribed by APB No. 25 Accounting for Stock Issued to Employees and interpretations thereof (collectively APB 25) versus the fair value method allowed by SFAS No. 123. We have implemented the disclosure provision of SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure. This statement amended the disclosure provisions of Financial Accounting Standards Board (FASB) SFAS No. 123, Accounting for Stock Based Compensation, to require
prominent disclosure of the effect on reported net income of an entitys accounting policy decisions with respect to stock-based employee compensation and amended APB Opinion No. 28, Interim Financial Reporting, to require disclosure of those
effects in interim financial information. Accordingly, no compensation cost has been recognized in the accompanying Consolidated Statements of Operations for the nine months ended September 30, 2004 and 2003 in respect of stock options granted
during those periods. See Note 2 to Consolidated Financial Statements for further discussion of our accounting for our stock-based compensation plans. Had compensation cost for these options been determined consistent with SFAS No. 123 and SFAS No.
148, our net loss applicable to common shareholders, basic and diluted loss per share would have been as follows:



|                                                                                                                                            |  |                                |        |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------- | -
|                                                                                                                                            |  | Nine Months endedSeptember 30, |       
|                                                                                                                                            |  | 2004                           |        |   | 2003 |  
|Net loss applicable to common shareholders, as reported                                                                                     |  | $                              | (5,075 | ) |      | $ | (32,396 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                | (626   | ) |      |   | (636    | )
|                                                                                                                                            |  |                                |        |   |      |   |         |  
|Pro forma net loss                                                                                                                          |  | $                              | (5,701 | ) |      | $ | (33,032 | )
|                                                                                                                                            |  |                                |        |   |      |   |         |  
|Loss per share:                                                                                                                             |  |                                |        |   |      |   |         |  
|Basic and dilutedas reported                                                                                                               |  | $                              | (0.48  | ) |      | $ | (3.16   | )
|Basic and dilutedpro forma                                                                                                                 |  | $                              | (0.54  | ) |      | $ | (3.22   | )



As required, the pro
forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying SFAS No. 123 for providing pro forma disclosures may not be representative of the effects on reported net income (loss) for future years
until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.



Reclassification



Certain reclassifications have been made to prior period financial
statements to conform to the current periods presentation.



2.
Stock-Based Employee Compensation



We follow APB 25 and
related Interpretations in accounting for our employee stock options. Under APB 25, because the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, generally no compensation expense is
recognized.



Pro forma information regarding net income and
earnings per share, as presented in Note 1, is required by SFAS No. 123, as amended by SFAS No. 148, and has been determined as if we had accounted for our employee



7



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in thousands, except share information)



stock options under the fair value method of SFAS No. 123 as of its effective date. The weighted average fair value for options was estimated at the dates of
grants using the Black-Scholes option-pricing model to be $1.43 for the nine months ended September 30, 2004 and $1.79 for the nine months ended September 30, 2003, with the following weighted average assumptions: risk free interest rate of 3.25%
for the nine months ended September 30, 2004 and 2003; expected volatility factors of 122% and 189% for nine months ended September 30, 2004 and 2003, respectively; expected dividend yield of 0% for the nine months ended September 30, 2004 and 2003;
and estimated option lives of 5 years for the nine months ended September 30, 2004 and 2003.



In prior years, we repriced 775,300 options with an exercise price of $8.77 to an exercise price of $2.81, which represented the fair market value on the date of the repricing. In accordance with generally accepted
accounting principles, we have adopted variable plan accounting for these options from the date of the repricing. The price of the stock dropped below the repriced levels after trading at prices higher than the repriced levels. No compensation
expense was required in September 30, 2004 and 2003.



On
January 5, 2004, we granted 50,000 options to an executive at an exercise price of $1.50, which was the fair market value at the date of grant. These options vest over a three-year period. On April 15, 2004, we granted 25,000 options to an executive
at an exercise price of $2.09, which was the fair market value at the date of grant. These options vest over a three-year period. On March 19, 2003, we granted 40,000 options to an executive at an exercise price of $1.73, which was the fair market
value at the date of grant. These options vest over a three-year period. On November 21, 2003, we granted 250,000 options to an executive at an exercise price of $1.50, which was the below fair market value at the date of grant. We recorded
compensation expense of $38 related to these options, since they were granted at below market value. These options vest over a three-year period.



3. Shareholders Deficit



We are authorized to issue Series A Convertible Preferred Stock (the Series A Stock) with a face value of $100 per share and a liquidation
preference in such amount in priority over the Companys Class A and Class B common stock. Each share of the Series A Stock may be converted at the option of the holder at any time into 25 shares of Class A common stock at an initial
conversion price of $4.00 per share (subject to anti-dilution adjustments). If the market price of our Class A common stock is $8.00 or more for 30 consecutive trading days, the Series A Stock will automatically be converted into shares of Class A
common stock at the then applicable conversion price. The Series A Stock bears a 4% annual cumulative dividend that may be paid in cash or in kind (in additional shares of the Series A Stock) at the Companys discretion. We expect to pay such
dividends in kind for the foreseeable future. Holders of shares of the Series A Stock vote on an as converted basis, together with the holders of Class A and Class B common stock. A stock dividend for the Series A Stock in the amount of
4,561 and 4,037 shares was paid as of May 1, 2004 and 2003, respectively.



On June 30, 2004, our Interep Stock Growth Plan (SGP) paid us $537 to purchase 365,223 shares of Class B common stock. In March 2004, the SGP paid us $544 to purchase 238,759 shares of Class B common
stock, which were not issued until the second quarter of 2004. The shares were issued at the current fair market value on the date of purchase. During 2003, the SGP purchased Class A common stock in the open market rather than shares of Class B
common stock from the Company.



4. Long-Term Debt



Long-term debt at September 30, 2004 was comprised of $99,000 in 10.0%
Senior Subordinated Notes due July 1, 2008 (the Notes). At September 30, 2004, there were no advances outstanding under the $10,000 senior secured revolving credit facility described below.



8



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in thousands, except share information)



The Notes are general unsecured obligations of the Company, and the indenture for the Notes provides,
among other things, restrictions on incurring additional indebtedness, payment of dividends, repurchase of equity interests (as defined), creation of liens (as defined), transactions with affiliates (as defined), sales of assets or certain mergers
and consolidations. Management believes that we are in compliance with these covenants. The Notes bear interest at the rate of 10.0% per annum, payable semiannually on January 1 and July 1. The Notes are subject to redemption at the option of the
Company, in whole or in part. All of our subsidiaries are guarantors of the Notes. Each guarantee is full, unconditional and joint and several with the other guarantees. We have no other assets or operations separate from our investment in the
subsidiaries. In July 2000, we repurchased $1,000 in principal of the Notes in the open market.



We capitalized $4,689 of costs incurred in the offering of the Notes, which are being amortized over the ten-year life of the Notes.



In September 2003, we entered into a $10,000 senior secured revolving credit
facility with Commerce Bank, N.A. to replace our $10,000 senior secured term loan facility with an institutional lender. The revolving credit facility enables us to efficiently manage our cash as we may borrow, repay and re-borrow funds as needed.
The revolving credit facility has an initial term of three years. The credit facility is secured by a first priority lien on all of our and our subsidiaries property and assets, tangible and intangible. Interest is payable monthly on the
borrowings at rates based on either a prime rate or LIBOR, plus a premium of 1% for prime rate borrowings, and 4% for LIBOR borrowings. In addition to covenants similar to those in the indenture governing the Notes, the credit facility requires,
among other things, that we (i) maintain certain 12-month trailing Operating EBITDA levels (Operating EBITDA is defined in the Loan and Security Agreement as, for any period: (a) the Companys consolidated net income (loss), plus
(b) all taxes on income plus state and local franchise and corporate taxes paid by the Company and any of its subsidiaries plus (c) all interest expense deducted in determining such net income, plus (d) all depreciation and amortization expense and
other non-cash charges (including, without limitation, non-cash charges resulting from the repricing of employee stock options), plus (e) severance costs expensed but not yet paid in cash, less (f) extraordinary gains, plus (g) extraordinary losses,
less (h) contract termination revenue); (ii) have a certain minimum accounts receivable balance as of the end of each quarter; (iii) have not less than $200,000 of representation contract value (as defined) as of the end of each quarter; and (iv)
have not less than $2,000 of cash and cash equivalents as of the end of each quarter. Management believes that we are in compliance with these covenants. We incurred approximately $500 in legal and other costs directly related to the revolving
credit facility, which are being amortized as interest expense over the life of the facility. Substantially all of our subsidiaries, jointly, severally and unconditionally guarantee the revolving credit facility.



5. Commitments and Contingencies



We may be involved in various legal actions from time to time arising in the
normal course of business. In the opinion of management, there are no matters outstanding that would have a material adverse effect on the consolidated financial position or results of our operations.



In October 2003, one of our subsidiaries instituted an arbitration proceeding
in Las Vegas, Nevada against Citadel Broadcasting Corporation in connection with Citadels termination of its representation contract with us. We were seeking monetary damages from Citadel for, among other things, unpaid commissions to which we
are contractually entitled and other damages arising from Citadels breach of the representation contract and certain other contracts to which Citadel is a party. We commenced the arbitration proceeding pursuant to the commercial arbitration
rules of the American Arbitration Association. In November 2003, Citadel served its answer and several counterclaims.



9



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INTEREP NATIONAL RADIO SALES, INC.



NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in thousands, except share information)



On August 19, 2004, we reached a settlement with Citadel Broadcasting with respect to the dispute.
The parties agreed to jointly state that Citadel no longer contends that we breached the Representation Agreement or failed to adequately perform. The precise terms of the settlement are confidential. Substantially all of the contract termination
revenue in the statement of operations relates to this contract.



Certain of our clients were served summons and complaints (on separate matters) for alleged breaches of various national sales representation agreements. We had agreed to indemnify our clients from and against any loss, liability, cost or
expense incurred in the actions. In the first quarter of 2002, we entered into a settlement agreement regarding these contract acquisition claims. The settlement resulted in the offset of approximately $12,500 in representation contract buyout
receivables and payables as well as additional contract termination revenue of $2,400. In addition, the settlement agreement includes amended payment schedules for approximately $500 in contract representation payables previously recorded.



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



The following discussion should be read in
conjunction with our Consolidated Financial Statements, including the notes thereto, included elsewhere in this Report.



Throughout this Quarterly Report, when we refer to Interep or the Company, we refer collectively to Interep National Radio Sales,
Inc. and all of our subsidiaries unless the context indicates otherwise or as otherwise noted.



Important Note Regarding Forward Looking Statements



Some of the statements made in this Quarterly Report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not statements of
historical fact, but instead represent our belief about future events. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential, continue, or the negative of these terms or other comparable terminology. These statements are based on many assumptions
and involve known and unknown risks and uncertainties that are inherently uncertain and beyond our control. These risks and uncertainties may cause our or our industrys actual results, levels of activity, performance or achievements to be
materially different than any expressed or implied by these forward-looking statements. Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. You should review the factors noted in Managements Discussion and Analysis of Financial Condition and Results of OperationCertain Factors That May Affect Our Results of Operations below for a discussion of some of
the things that could cause actual results to differ from those expressed in our forward-looking statements.



Overview



We derive a
substantial majority of our revenues from commissions on sales of national spot radio advertising airtime for the radio stations we represent. Generally, advertising agencies or media buying services retained by advertisers purchase national spot
advertising time. We receive commissions from our client radio stations based on the national spot radio advertising billings of the station, net of agency commissions, generally 15%. We enter into written representation contracts with our clients,
which include negotiated commission rates. Because commissions are based on the prices paid to radio stations for spots, our revenue base is essentially adjusted for inflation.



Our operating results generally depend on:



| |  | changes in advertising expenditures;
| | - | ------------------------------------



| |  | increases and decreases in the size of the total national spot radio advertising market;
| | - | ----------------------------------------------------------------------------------------



| |  | changes in our share of this market;
| | - | ------------------------------------



| |  | acquisitions and terminations of representation contracts; and
| | - | --------------------------------------------------------------



| |  | operating expense levels.
| | - | -------------------------



The effect of these factors on our financial condition and results of operations varies from period to period.



A number of factors influence the performance of the national spot radio
advertising market, including, but not limited to, general economic conditions, consumer attitudes and spending patterns, the amount spent on advertising generally, the share of total advertising spent on radio and the share of total radio
advertising represented by national spot radio.



11



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Our share of the national spot advertising market changes as a result of increases and decreases in the
amount of national spot advertising broadcast by our clients. Moreover, our market share increases as we acquire representation contracts with new client stations and decreases if current client representation contracts are terminated. Thus, our
ability to attract new clients and to retain existing clients affects our market share.



The value of representation contracts that have been acquired or terminated during the last few years has tended to increase due to a number of factors, including the consolidation of ownership in the radio broadcast
industry following the passage of the Telecommunications Act of 1996. In the period following that legislation, we increased our representation contract acquisition activity and devoted a significant amount of our resources to these acquisitions.
While the pace of that activity significantly declined in recent years, it may again increase in light of recent Federal Communications Commission rule-making. We base our decisions to acquire a representation contract on the market share
opportunity presented and an analysis of the costs and net benefits to be derived. We continuously seek opportunities to acquire additional representation contracts on attractive terms, while maintaining our current clients. Our ability to acquire
and maintain representation contracts has had, and will continue to have, a significant impact on our revenues and cash flows.



We recognize revenues on a contract termination as of the effective date of the termination, except in the case of a material dispute. In that event,
revenue is recognized when the dispute is resolved. When a contract is terminated, we write off in full the unamortized portion, if any, of the cost we originally incurred on our acquisition of the contract. When we enter into a representation
contract with a new client, we amortize the contract acquisition cost in equal monthly installments over the life of the new contract. As a result, our operating income is affected, negatively or positively, by the acquisition or loss of client
stations. We are unable to forecast any trends in contract buyout activity, or in the amount of revenues or expenses that will likely be associated with buyouts during a particular period. Generally, the amount of revenue resulting from the buyout
of a representation contract depends on the length of the remaining term of the contract and the revenue generated under the contract during the 12-month trailing period preceding the date of termination. The amount recognized by us as
contract termination revenue in any period is not, however, indicative of contract termination revenue that may be realized in any future period. Historically, the level of buyout activity has varied from period to period. Additionally, the length
of the remaining terms, and the commission revenue generation, of the contracts which are terminated in any period vary to a considerable extent. Accordingly, while buyout activity and the size of buyout payments generally increased after 1996,
their impact on our revenues and income is expected to be uncertain, due to the variables of contract length and commission generation.



Similar to radio representation, we sell advertising on behalf of Internet website clients. Revenues and expenses from this portion of our business are
affected generally by the level of advertising on the Internet, and the portion of that advertising that we can direct to our clients websites, the prices obtained for advertising on the Internet and our ability to obtain contracts from
high-traffic Internet websites and from Internet advertisers.



Our selling and corporate expense levels are dependent on management decisions regarding operating and staffing levels and inflation. Selling expenses represent all costs associated with our marketing, sales and sales support functions.
Corporate expenses include items such as corporate management, corporate communications, financial services, advertising and promotion expenses and employee benefit plan contributions.



Our business generally follows the pattern of advertising expenditures. It is seasonal to the extent that radio advertising
spending increases during the fourth calendar quarter in connection with the Christmas season and tends to be weaker during the first calendar quarter. Radio advertising also generally increases during the second and third quarters due to
holiday-related advertising, school vacations and back-to-school sales. Additionally, radio tends to experience increases in the amount of advertising revenues as a result of special events such as political election campaigns. Furthermore, the
level of advertising revenues of radio stations, and therefore our level of revenues, is susceptible to prevailing general and local economic conditions and the corresponding increases or decreases in the budgets of advertisers, as well as market
conditions and trends affecting advertising expenditures in specific industries.



12



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Results of Operations



Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003



Commission revenues. Commission revenues for the third quarter of 2004 decreased to $18.6 million from $23.0 million
for the third quarter of 2003, or approximately 19.4%. A significant portion of this $4.4 million decrease was attributable to the cancellation of our representation contract with Citadel Broadcasting in the fourth quarter of 2003. (See Note 5 to
the unaudited interim consolidated financial statements.) There was also a dramatic softness in national spot advertising. Factors contributing to this softness are the sluggishness of the economic recovery in general, and, more particularly, the
recurrence this year of the historical pattern of national advertisers over-emphasizing television ad spending during Olympic years.



Contract termination revenue. Contract termination revenue in the third quarter of 2004 was $18.8 million in the third quarter of 2004 as compared
to less than $0.1 million in 2003. Substantially all of this increase was attributable to the Citadel representation contract.



Selling expenses. Selling expenses for the third quarter of 2004 decreased to $16.0 million from $16.3 million in the third quarter of 2003.
This decrease of $0.3 million, or approximately 1.9%, was, in large part, attributable to lower compensation costs, resulting from prior year severance programs, that were partially offset by $0.4 million of special promotion program costs.



General and administrative expenses. General and
administrative expenses of $3.6 million for the third quarter of 2004 increased $0.2 million, or 5.7%, from $3.4 million for the third quarter of 2003 primarily due to the increase in legal expenses related to the Citadel litigation of $0.5 million.



Operating income before depreciation and amortization.
Operating income before depreciation and amortization increased by $14.5 million for the third quarter of 2004 to $17.9 million, from $3.4 million for the third quarter of 2003, for the reasons discussed above. Operating income before depreciation
and amortization is not a measure of performance calculated in accordance with GAAP and should not be considered in isolation from or as a substitute for operating income (loss), net income (loss), cash flow or other GAAP measurements. We believe it
is useful in evaluating our performance, in addition to the GAAP data presented, as it is commonly used by lenders and the investment community to evaluate the performance of companies in our business. Moreover, the maintenance of certain levels of
operating income before depreciation and amortization is required under the covenants of our revolving credit facility.



Reconciliation of operating income before depreciation and amortization to GAAP Loss Data



|                                                      |  |                        |        |      |   |         |  
|----------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------- | -
|                                                      |  | September 30           |       
|                                                      |  | 2004                   |        | 2003 |  
|                                                      |  | (dollars in thousands) |       
|Net income (loss) applicable to common shareholders   |  | $                      | 10,243 |      | $ | (18,916 | )
|Add back:                                             |  |                        |        |      |   |         |  
|Depreciation and amortization                         |  |                        | 4,829  |      |   | 17,228  |  
|Preferred stock dividend                              |  |                        | 119    |      |   | 114     |  
|Tax provision                                         |  |                        | 35     |      |   | 64      |  
|Other expense                                         |  |                        |       |      |   | 500     |  
|Interest expense, net                                 |  |                        | 2,634  |      |   | 4,404   |  
|                                                      |  |                        |        |      |   |         |  
|Operating income before depreciation and amortization |  | $                      | 17,860 |      | $ | 3,394   |  
|                                                      |  |                        |        |      |   |         |  



Depreciation and
amortization expense. Depreciation and amortization expense decreased $12.4 million, or 72.0%, during the third quarter of 2004, to $4.8 million from $17.2 million in the third quarter of 2003. This decrease was substantially the result of the
$11.6 million write-off in 2003 of deferred representation contract



13



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costs related to the termination of the Citadel representation contract and lower contract acquisition cost amortization in 2004.



Operating income (loss). For the third quarter of 2004, we had
operating income of $13.0 million, as compared to an operating loss of $13.8 million for the third quarter of 2003, for the reasons discussed above. Currently, we believe national radio advertising is experiencing a softness in revenues due to a
combination of business and economic factors, and it is unclear when the trend will reverse itself and to what extent. While historically, the level of national radio advertising tends to increase during the fourth quarter, and we anticipate such an
increase for 2004, it is likely that the general softness will continue into the fourth quarter. Additionally, we are exploring ways to increase capital and further decrease our expenses to offset the decline in revenues.



Interest expense, net. Interest expense, net, decreased $1.8 million,
or 40.2%, to $2.6 million for the third quarter of 2004, from $4.4 million for the third quarter of 2003. This decrease primarily resulted from the cancellation of our term loan facility in the third quarter of 2003, and the replacement with our
lower interest rate revolving credit facility, which included the write-off of $1.2 million of unamortized deferred debt financing costs and the write-off of $0.4 million of unamortized discount related to the warrants issued in connection with that
term loan facility.



Provision for income taxes. Our
current and deferred income taxes, and associated valuation allowances, are affected by events and transactions arising in the normal course of business as well as in connection with special and non-recurring items. Assessment of the appropriate
amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual collections and payments may differ from these
estimates as a result of changes in tax laws as well as unanticipated future transactions affecting related income tax balances. The provision for income taxes for the third quarter of 2004 was less than $0.1 million as compared to $0.1 million for
the comparable 2003 period.



Net income (loss) applicable to
common shareholders. Our net income applicable to common shareholders was $10.2 million as compared to a net loss applicable to common shareholders of $18.9 million for the third quarter of 2003, for the reasons discussed above.



Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003



Commission revenues. Commission revenues for
the first nine months of 2004 decreased to $56.1 million from $64.2 million for the first nine months of 2003, or approximately 12.6%. A significant portion of this $8.1 million decrease was attributable to the cancellation of our
representation contract with Citadel. As discussed above, there was also a dramatic softness in national spot advertising.



Contract termination revenue. Contract termination revenue in the first nine months of 2004 increased by $19.4 million to $20.0 million from $0.6
million in the first nine months of 2003. Substantially all of this increase was attributable to the Citadel representation contract.



Selling expenses. Selling expenses for the first nine months of 2004 decreased to $46.6 million from $47.5 million in the first nine months of
2003. This decrease of $0.9 million, or approximately 1.9%, was, in large part due to lower compensation costs, resulting from prior year severance programs, including severance costs of $1.4 million in 2003, partially offset by $1.9 million of
special promotion program costs.



General and administrative
expenses. General and administrative expenses of $11.0 million for the first nine months of 2004 increased $0.8 million, or 7.5%, from $10.2 million for the first nine months of 2003, primarily due to the increase in legal expenses related to
the Citadel litigation of $1.2 million.



Operating income
before depreciation and amortization. Operating income before depreciation and amortization increased by $11.4 million for the first nine months of 2004 to $18.5 million, from $7.1 million for the first nine months of 2003, for the reasons
discussed above.



14



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Reconciliation of operating income before depreciation and amortization to GAAP Loss Data



|                                                      |  |                        |        |   |      |   |         |  
|----------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------- | -
|                                                      |  | September 30           |       
|                                                      |  | 2004                   |        |   | 2003 |  
|                                                      |  | (dollars in thousands) |       
|Net loss applicable to common shareholders            |  | $                      | (5,075 | ) |      | $ | (32,396 | )
|Add back:                                             |  |                        |        |   |      |   |         |  
|Depreciation and amortization                         |  |                        | 15,045 |   |      |   | 28,406  |  
|Preferred stock dividend                              |  |                        | 350    |   |      |   | 354     |  
|Tax provision                                         |  |                        | 227    |   |      |   | 241     |  
|Other expense                                         |  |                        |       |   |      |   | 500     |  
|Interest expense, net                                 |  |                        | 7,952  |   |      |   | 9,952   |  
|                                                      |  |                        |        |   |      |   |         |  
|Operating income before depreciation and amortization |  | $                      | 18,499 |   |      | $ | 7,057   |  
|                                                      |  |                        |        |   |      |   |         |  



Depreciation and
amortization expense. Depreciation and amortization expense decreased $13.4 million, or 47.0%, during the first nine months of 2004, to $15.0 million from $28.4 million in the first nine months of 2003. This decrease was substantially the result
of the $11.6 million write-off in 2003 of deferred representation contract costs related to the termination of the Citadel representation contract and lower contract acquisition cost amortization.



Operating income (loss). For the first nine months of 2004, we had
operating income of $3.5 million, as compared to an operating loss of $21.3 million for the first nine months of 2003, for the reasons discussed above. Currently, we believe national radio advertising is experiencing a softness in revenues due to a
combination of business and economic factors, and it is unclear when the trend will reverse itself and to what extent. While historically, the level of national radio advertising tends to increase during the fourth quarter, and we anticipate such an
increase for 2004, it is likely that the general softness will continue into the fourth quarter. Additionally, we are exploring ways to increase capital and further decrease our expenses to offset the decline in revenues.



Interest expense, net. Interest expense, net, decreased $2.0 million,
or 20.1%, to $8.0 million for the first nine months of 2004, from $10.0 million for the first nine months of 2003. This decrease primarily resulted from the cancellation in September 2003 of our term loan facility, and the replacement with our lower
interest rate revolving credit facility, which included the write-off of $1.2 million of unamortized deferred debt financing costs and the write-off of $0.4 million of unamortized discount related to the warrants issued in connection with that term
loan facility.



Provision for income taxes. Our current
and deferred income taxes, and associated valuation allowances, are affected by events and transactions arising in the normal course of business as well as in connection with special and non-recurring items. Assessment of the appropriate amount and
classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual collections and payments may differ from these estimates as
a result of changes in tax laws as well as unanticipated future transactions affecting related income tax balances. The provision for income taxes for the first nine months of 2004 and 2003 was $0.2 million.



Net loss applicable to common shareholders. Our net loss applicable to
common shareholders decreased $27.3 million, or 84.3%, to $5.1 million for the first nine months of 2004, from $32.4 million for the first nine months of 2003 for the reasons discussed above.



Liquidity and Capital Resources



Our cash requirements have been primarily funded by cash provided from
operations and financing transactions. At September 30, 2004, we had cash and cash equivalents of $15.0 million, working capital of $16.0 million and availability under our credit facility of $10.0 million.



15



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Cash provided by operating activities during the first nine months of 2004 was $16.4 million, as compared
to $5.4 million during the first nine months of 2003. This fluctuation was substantially attributable to contract termination revenue offset by working capital components.



Net cash used in investing activities is attributable to capital expenditures. Net cash used in investing activities during
the first nine months of 2004 and 2003 were $0.8 million and $2.0 million. The payments made in 2004 include $0.4 million, which was capitalized in 2003.



Cash used for financing activities of $8.2 million during the first nine months of 2004 consisted of $5.3 million for representation contract
acquisition payments and $25.7 million of gross repayments on our credit facility, offset by $21.7 million of gross borrowings on our credit facility and $1.1 million received by us for Class B common stock issued to our Stock Growth Plan. Cash used
for financing activities of $11.3 million during the comparable period of 2003 consisted of $8.9 million of representation contract acquisition payments and a $2.4 million reduction in debt. This reduction consisted of the repayment of $10 million
for the term loan facility offset by the borrowing of $8 million on the new revolving credit facility, net of $0.4 million of related financing costs.



In general, as we acquire new representation contracts, we use more cash and, as our contracts are terminated, we receive additional cash. For the reasons
noted above in Overview, we are not able to predict the amount of cash we will require for contract acquisitions, or the cash we will receive on contract terminations, from period to period.



We do not have any written options on financial assets, nor do we have any
special purpose entities. We have not guaranteed any obligations of our unconsolidated investments.



The Senior Subordinated Notes were issued under an indenture that limits our ability to engage in various activities. Among other things, we are generally
not able to pay any dividends to our shareholders, other than dividends payable in shares of common stock; we can only incur additional indebtedness under limited circumstances, and certain types of mergers, asset sales and changes of control either
are not permitted or permit the note holders to demand immediate redemption of their Senior Subordinated Notes. Management believes that we are in compliance with these covenants.



Our Senior Subordinated Notes are redeemable at our option. If certain events occurred which would be deemed to involve a
change of control under the indenture, we would be required to offer to repurchase all of the Senior Subordinated Notes at a price equal to 101% of their aggregate principal, plus unpaid interest.



In September 2003, we entered into a $10 million senior secured revolving
credit facility with Commerce Bank, N.A. to replace our $10 million senior secured term loan facility with an institutional lender. The revolving credit facility enables us to more efficiently manage our cash as we may borrow, repay and re-borrow
funds as needed. The revolving credit facility has an initial term of three years. The credit facility is secured by a first priority lien on all of our and our subsidiaries property and assets, tangible and intangible. Interest is payable
monthly on the borrowings at rates based on either a prime rate or LIBOR, plus a premium of 1% for prime rate borrowings, and 4% for LIBOR borrowings. In addition to covenants similar to those in the indenture governing the Notes, the credit
facility requires, among other things, that we (i) maintain certain 12-month trailing Operating EBITDA levels (Operating EBITDA is defined in the Loan and Security Agreement as, for any period: (a) our consolidated net income (loss),
plus (b) all taxes on income plus state and local franchise and corporate taxes paid by us and any of our subsidiaries plus (c) all interest expense deducted in determining such net income, plus (d) all depreciation and amortization expense and
other non-cash charges (including, without limitation, non-cash charges resulting from the repricing of employee stock options), plus (e) severance costs expensed but not yet paid in cash, less (f) extraordinary gains, plus (g) extraordinary losses,
less (h) contract termination revenue); (ii) have certain minimum accounts receivable as of the end of each quarter; (iii) have not less than $200 million of representation contract value (as defined) as of the end of each quarter; and (iv) have



16



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not less than $2 million of cash and cash equivalents as of the end of each quarter. We incurred approximately $0.5 million in legal and other costs directly
related to the revolving credit facility, which are being amortized as interest expense over the life of the facility. The remaining $1.2 million of unamortized financing costs related to the superseded term loan facility, as well as the remaining
$0.4 million of unamortized discount related to the warrants issued in conjunction with that facility, were written off to interest expense during the third quarter of 2003. Substantially all of our subsidiaries, jointly, severally and
unconditionally guarantee the revolving credit facility. At September 30, 2004, we had $10.0 million available under our revolving credit facility.



On November 7, 2002, we entered into an agreement with an institutional lender to provide us with a $10 million term loan facility. The loan had a
five-year term, was secured by an interest in substantially all of our assets and required that interest at a rate of 8.125% be paid quarterly. In connection with the loan, we issued a warrant to an affiliate of the lender to purchase 225,000 shares
of our Class A common stock for nominal consideration. These warrants were valued at $0.5 million using a Black-Scholes model and were recorded as a discount to the term loan facility, which was being amortized as interest expense based on an
effective interest rate method over the life of the loan. In addition, 50,000 shares of our Class A common stock were issued to an advisor in connection with the term loan. These shares were recorded at fair value at the time of issuance, which was
$0.1 million, and was recorded as deferred loan cost, which was being amortized on a straight-line basis over the term of the loan. This obligation was repaid with the proceeds from our revolving credit facility and the commitment was terminated.



During 2002, we completed a series of private placements to
issue 110,000 units for an aggregate purchase price of $11 million, less related costs. Each unit consists of one share of Series A Convertible Preferred Stock (Series A Preferred Stock) and 6.25 warrants to acquire the same number of
shares of our Class A common stock. The warrants are exercisable at any time from the date of grant and expire at various times in 2007. We also issued warrants to acquire 5,000 shares of our Class A common stock to a placement agent in connection
with the sale of 10,000 units. We incurred approximately $0.8 million in legal and other costs directly related to the private placements.



We believe that the liquidity resulting from the transactions described above, together with anticipated cash from continuing operations, should be
sufficient to fund our operations and anticipated needs for required representation contract acquisition payments, and to make the required 10% annual interest payments on the Senior Subordinated Notes, as well as the monthly interest payments under
our senior secured revolving loan facility, for at least the next 12 months. We may not, however, generate sufficient cash flow for these purposes or to repay the notes at maturity. Accordingly, we are exploring additional sources of capital and
ways to reduce our expenses.



Our ability to fund our
operations and required contract acquisition payments and to make scheduled principal and interest payments will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. We may also need to refinance all or a portion of the Senior Subordinated Notes on or prior to maturity. There can be no assurance that we will be able to effect any such refinancing on
commercially reasonable terms, if at all.



Certain Factors That May
Affect Our Results of Operations



The following
factors are some, but not all, of the variables that may have an impact on our results of operations:



| |  | Changes in the ownership of our radio station clients, in the demand for radio advertising, in our expenses, in the types of services offered by our competitors, and in general
economic factors may adversely affect our ability to generate the same levels of revenue and operating results.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Advertising tends to be seasonal in nature as advertisers typically spend less on radio advertising during the first calendar quarter.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



17



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| |  | Terrorism, the military action in Iraq and other geopolitical situations have caused uncertainty. While the ongoing consequences of these events remain unclear, we believe that they
have likely had an adverse effect on general economic conditions, consumer confidence, advertising and the media industry and may continue to do so in the future.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The termination of a representation contract will increase our results of operations for the fiscal quarter in which the termination occurs due to the termination payments that are
usually required to be paid, but will negatively affect our results in later quarters due to the loss of commission revenues. Hence, our results of operations on a quarterly basis are not predictable and are subject to significant fluctuations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We depend heavily on our key personnel, including our Chief Executive Officer Ralph C. Guild, our President and Chief Operating Officer George E. Pine and the President of our
Marketing Division Marc Guild, and our inability to retain them could adversely affect our business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We rely on a limited number of clients for a significant portion of our revenues.
| | - | ---------------------------------------------------------------------------------



| |  | Our significant indebtedness may burden our operations, which could make us more vulnerable to general adverse economic and industry conditions, make it more difficult to obtain
additional financing when needed, reduce our cash flow from operations to make payments of principal and interest and make it more difficult to react to changes in our business and industry.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We may need additional financing for our future capital needs, which may not be available on favorable terms, if at all.
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | Competition could harm our business. Our only significant competitor is Katz Media Group, Inc., which is a subsidiary of a major radio station group that has significantly greater
financial and other resources than do we. In addition, radio must compete for a share of advertisers total advertising budgets with other advertising media such as television, cable, print, outdoor advertising and the Internet.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Acquisitions and strategic investments could adversely affect our business.
| | - | ---------------------------------------------------------------------------



| |  | Our Internet business may suffer if the market for Internet advertising weakens.
| | - | --------------------------------------------------------------------------------



Critical Accounting Policies



Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description
of accounting policies that are considered critical may be found in our 2003 Annual Report on Form 10-K, filed on March 29, 2004, in the Notes to the Consolidated Financial Statements, Note 1, and the Critical Accounting Policies section of Item 7
of Part II.



Contractual Obligations and Other Commercial Commitments



|                                    |  |                        |       |                |   |           |  |           |      |                 |   |       |  |   |    
|----------------------------------- |  | ---------------------- | ----- | -------------- | - | --------- |  | --------- | ---- | --------------- | - | ----- |  | - | ---
|                                    |  | Payments Due by Period
|                                    |  | Total                  |       | Remainder 2004 |   | 2005-2006 |  | 2007-2008 |      | 2009-Thereafter
|                                    |  | (Dollars in Millions) 
|Long term debt                      |  | $                      | 99.0  |                | $ |          |  | $         |     |                 | $ | 99.0  |  | $ |   
|Operating leases                    |  |                        | 10.6  |                |   | 1.2       |  |           | 5.2  |                 |   | 3.5   |  |   | 0.7
|Interest expense                    |  |                        | 39.6  |                |   |          |  |           | 19.8 |                 |   | 19.8  |  |   |   
|Annual fees for accounting services |  |                        | 19.0  |                |   | 0.8       |  |           | 7.7  |                 |   | 8.6   |  |   | 1.9
|Representation contract buyouts     |  |                        | 8.9   |                |   | 3.2       |  |           | 4.7  |                 |   | 0.6   |  |   | 0.4
|                                    |  |                        |       |                |   |           |  |           |      |                 |   |       |  |   |    
|Total                               |  | $                      | 177.1 |                | $ | 5.2       |  | $         | 37.4 |                 | $ | 131.5 |  | $ | 3.0
|                                    |  |                        |       |                |   |           |  |           |      |                 |   |       |  |   |    



18



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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are exposed to market risk from changes in interest rates that may
adversely affect our results of operations and financial condition. We seek to minimize the risks from these interest rate fluctuations through our regular operating and financing activities. Our policy is not to use financial instruments for
trading or other speculative purposes. We are not currently a party to any financial instruments.



Because our obligation under the senior secured revolving credit facility bears interest at a variable rate, we are sensitive to changes in prevailing
interest rates. A one-point fluctuation in market rates would not have had a material impact on 2004 earnings.



Item 4. CONTROLS AND PROCEDURES



(a) Evaluation of Disclosure Controls and Procedures



An evaluation as of the end of the period covered by this quarterly report was carried out under the supervision and with the participation of our management, including the Chairman and Chief Executive Officer and our Senior Vice President
and Chief Financial Officer, of the effectiveness of the design and operation our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934). Based upon that evaluation,
our Chairman and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective.



(b) Changes in Internal Controls



There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our control over financial reporting.



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PART II



OTHER INFORMATION



Item 1. LEGAL PROCEEDINGS



We are involved in judicial and administrative proceedings from time to time concerning matters arising in connection with the conduct of our business. We
believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition.



On August 19, 2004, we reached a settlement with Citadel Broadcasting with respect to a dispute arising after Citadel ended
its representation with us in October 2003. The parties have agreed to jointly state that Citadel no longer contends that we breached the Representation Agreement or failed to adequately perform. The precise terms of the settlement are confidential.



Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None.



Item 3. DEFAULTS UPON SENIOR SECURITIES



None.



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



We held our annual meeting of shareholders on August 12, 2004, for the purpose of electing three directors to our Board of
Directors for a term of three years and ratifying the appointment of Ernst & Young LLP as our independent auditors for the 2004 fiscal year. Leslie D. Goldberg, John E. Palmer and Arnold Sheiffer were elected to serve on the Board of Directors
until our annual meeting of shareholders in 2007. Howard M. Brenner, Ralph C. Guild, Marc G. Guild, George E. Pine and Arnold Semsky have continued to serve their existing terms as directors.



Messrs. Goldberg, Palmer and Sheiffer were elected as directors by a vote of
44,132,613 votes, 44,698,786,votes and 44,699,786 votes in favor of their election, respectively, and 646,669 votes, 80,496 votes and 79,496 votes against, respectively. The votes cast in favor of Messrs. Goldberg, Palmer and Sheiffer represented
98.6%, 99.8% and 99.8% of the total number of votes cast, respectively. The proposal to ratify the appointment of Ernst & Young LLP as our independent auditors for the 2004 fiscal year was approved by a vote of 44,714,675 votes in favor of the
proposal, 24,671 votes against and 39,936 abstentions. The votes cast in favor of the proposal represented 99.9% of the total number of votes cast.



Item 5. OTHER INFORMATION



On October 8, 2004, we terminated our relationship with Ernst & Young LLP (E&Y), our independent public accountants. On October 21, 2004, we
engaged BDO Seidman LLP (BDO) as our independent public accountants. The Audit Committee of our Board of Directors considered, approved and recommended to our Board the termination of our engagement of E&Y and the appointment of BDO. These
actions were ratified and approved by our Board of Directors.



20



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Item 6. EXHIBITS AND REPORTS ON FORM 8-K.



(A)Documents Filed as Part of this Report



|            |  |                                                                                                                                            
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 15d-14(a) (filed herewith)                                                       
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rule 15d-14(a) (filed herewith)                                                       
|            | 
|32.1        |  | Certification pursuant to Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350(a), (b)) (furnished herewith)*

---

|* | The information furnished in Exhibit 32.1 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange
Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language
in such filing.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(B)Reports on Form 8-K



We have filed the following current reports on Form 8-K
during our third fiscal quarter:



|                |  |                |  |                           
|--------------- |  | -------------- |  | --------------------------
|Date of Report  |  | Items Reported |  | Financial Statements Filed
|August 10, 2004 |  | Item 12        |  | No                        
|                |  |               
|August 19, 2004 |  | Item 8.01      |  | No                        



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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 in the City of New York, State of New York.



November 15, 2004

| |  |     |  |                                                                          
| |  | --- |  | -------------------------------------------------------------------------
| |  |     |  | INTEREP NATIONAL RADIO SALES, INC.                                       
| |  |    
| |  | By: |  | /s/    WILLIAM J. MCENTEE,
JR.                                           
| |  |     |  | William J. McEntee, Jr. Senior Vice President and Chief Financial Officer



22



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Exhibit Index



|            |  |                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                          
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 15d-14(a)                                                  
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rule 15d-14(a)                                                  
|            | 
|32.1        |  | Certification pursuant to Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350(a), (b))



23