Form 10-Q

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

The number of shares of the registrant’s Common Stock outstanding as of the close of business on August 7, 2006, was 7,287,795 shares of Class A Common Stock, and 4,008,081 shares of Class B Common Stock.

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

The consolidated financial statements include the accounts of Interep National Radio Sales, Inc., together with its subsidiaries (collectively, “we” or “us”), 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 June 30, 2006 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, 2005, 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, 2006.

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.

We provide an allowance for doubtful accounts equal to our estimated uncollectible accounts receivable. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. We write off uncollectible accounts when we confirm with the customer that the account is uncollectible.

We are a national representation firm serving radio broadcast clients and certain television stations and internet service providers throughout the United States. Commission revenues are derived from sales of advertising time for radio stations and television stations under representation contracts. Commissions and fees are recognized in the month the advertisement is broadcast. In connection with our unwired radio network business, we collect fees for unwired network radio advertising and, after deducting our 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 months and six months ended June 30, 2006 and 2005 each had 13 weeks and 26 weeks, though some broadcast calendar quarters, such as the fourth quarter of 2006, will have 14 weeks.

Our station representation contracts have stated initial terms, and thereafter 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 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 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 our radio groups. These inducement payments are recorded as deferred costs and expensed in the period benefited.

Basic income (loss) per share applicable to common shareholders for each of the respective periods has been computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period, amounting to 11,295,876 for the three and six months ended June 30, 2006 and 2005. Diluted income (loss) per share would reflect the potential dilution that could occur if the outstanding options to purchase common stock were exercised. For the purposes of determining diluted income (loss) per share applicable to common shareholders for the three months ended June 30, 2006 and 2005, and the six months ended June 30, 2005, options to purchase common stock in the amount of 54,759, 3,866 and 28,481 shares, respectively, have been assumed to be converted to common shares. For the six months ended June 30, 2006, the exercise of outstanding options would have an antidilutive effect and therefore have been excluded from the calculation. Shares issuable under options that have not been included in the fully diluted income (loss) per share calculation because of their antidilutive effect were 4,153,226 and 5,429,851 for the three months ended June 30, 2006 and 2005 and 4,207,985 and 5,405,236, for the six months ended June 30, 2006 and 2005.

In 2005, we continued to offer an early retirement program, which was accepted by 18 people, including four executives, to reduce compensation costs on a going forward basis. We accrued $1,153 in the first six months of 2006 for the 12 terminations. In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, we recorded this liability at fair value as of the time the liability was incurred. At December 31, 2005, the accompanying consolidated balance sheets include accruals relating to the restructuring program of $1,705. We paid approximately $1,500 and $1,455 of termination benefits during the six months ended June 30, 2006 and 2005, and accreted approximately $75 and $85 of interest expense. As of June 30, 2006, the remaining accrual was $1,433, of which $1,096 is included in accrued employee related liabilities and $337 is included in other noncurrent liabilities.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS No. 123R”), using the modified prospective application transition method. As described in Note 1 of the December 31, 2005 Consolidated Financial Report, SFAS No. 123R revises SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). Under the modified prospective method,

we have recorded compensation cost for the unvested portion of previously issued awards that remain outstanding at the initial date of adoption (using the amounts previously measured under SFAS No. 123 for pro forma disclosure purposes). Since we have chosen the modified prospective application transition method, the financial statements for the prior interim period have not been restated.

SFAS No. 123R requires us to estimate forfeitures in calculating the expense relating to stock-based compensation as opposed to recognizing these forfeitures and the corresponding reduction in expense as they occur. In addition, SFAS No. 123R requires the Company to reflect the tax savings resulting from tax deductions in excess of compensation expense reflected in its financial statements as a cash inflow from financing activities in its statement of cash flows rather than as an operating cash flow as in prior periods.

Prior to January 1, 2006 as permitted under generally accepted accounting principles, we accounted 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 implemented the disclosure provision of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. This statement amended the disclosure provisions of SFAS No. 123, 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 quarter and six months ended June 30, 2005 in respect of stock options granted during that period. 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:

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 stock options under the fair value method of SFAS No. 123 as of its effective date. The weighted averaged fair value for options was estimated at the dates of grant using a Black-Scholes option-pricing model, with the following weighted average assumptions: risk free interest rate of 3.25% for the six months ended June 30, 2005; expected volatility factor of 120% for the six months ended June 30, 2005; expected dividend yield of 0% for the six months ended June 30, 2005; and estimated option lives of 5 years for the six months ended June 30, 2005.

Consistent with prior years, the fair value of each stock option granted during the six months ended June 30, 2006 was estimated at the date of grant using a Black-Scholes option pricing model based on the assumptions of expected volatility of 287%, expected dividend yield of 0%, expected term of 5 years and a risk-free interest rate of 3.25%. The expected volatility is based on our consideration of the historical volatility of our stock based on

our historical stock prices. The expected term of an option is based on our historical review of employee exercise behavior based on the employee class (executive or non-executive) and based on our consideration of the remaining contractual term if limited exercise activity existed for a certain employee class. The risk-free interest rate is the constant maturity interest rate for U.S. Treasury instruments with terms consistent with the expected lives of the awards.

A summary of stock option activity as of June 30, 2006 and changes during the six months ended June 30, 2006 is presented below (in thousands except share and per share amounts):

The weighted average grant-date fair value of stock options granted during the six months ended June 30, 2006 was $0.31.

During the six months ended June 30, 2006, we expensed $28 as non-cash stock-based compensation. As of June 30, 2006, we had $40 of total unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 1.1 years.

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140”. SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. This standard is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We are currently evaluating the impact of this standard, but would not expect SFAS No. 155 to have a material impact on our consolidated results of operations or financial condition.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”), which will become effective for the company on January 1, 2007. This standard clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. A company can only recognize the tax position in the financial statements if the position is more-likely-than-not to be upheld on audit based only on the technical merits of the tax position. This accounting standard also provides guidance on thresholds, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better

financial-statement comparability among different companies. We do not expect implementation of the standard will have a material effect on its results of operations or financial position.

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

On January 2, 2006, we granted 20,000 options to an executive at an exercise price of $0.36, which was the fair market value at the date of grant. These options were fully vested on the date of grant. The weighted averaged fair value for options was estimated at the dates of grant using a Black-Scholes option-pricing model to be $0.31 for the six months ended June 30, 2006, with the following weighted average assumptions: risk free interest rate of 3.25% for the six months ended June 30, 2006; expected volatility factor of 287% for the six months ended June 30, 2006, which is based upon historical volatility; expected dividend yield of 0% for the six months ended June 30, 2006; and estimated option lives of 5 years for the six months ended June 30, 2006. See Note 1 above for additional information on Stock-based employee compensation.

On March 29, 2005, we granted, for Board-related service, 15,000 options to each of five directors and officers at an exercise price of $0.46, which was the fair market value per share of our Class A Common Stock at the date of grant as quoted on the OTC Bulletin Board. On April 27, 2005, we granted 200,000 options to an executive at an exercise price of $0.51, which was 110% of the fair market value on the date of grant.

On April 27, 2005, we reduced the exercise price of certain stock options held by one of our executives. The original exercise prices and number of shares were as follows: 626,880 shares at $3.80 per share; 1,253,759 shares at $4.02 per share; 52,240 shares at $4.20 per share and 125,000 at $2.81 per share. The price per share was reduced to $0.69 per share, which represented 150% of the $0.46 per share closing price of our Class A Common Stock on April 27, 2005. The termination date of these options was changed to December 31, 2015.

On April 21, 2006, we sold our investment in Burst Media in conjunction with its initial public offering. We realized net proceeds of approximately $9,947 on the sale. The carrying value of the investment at the time of sale was approximately $1,982. A one-time bonus payment of $1,737 was paid to an executive of the Company’s interactive subsidiary, as required by the bonus provisions of his employment agreement, and included in selling expenses.

In May 2002, we amended our restated certificate of incorporation for the purpose of establishing a series of preferred stock referred to as the Series A Convertible Preferred Stock (the “Series A Stock”), with the authorization to issue up to 400,000 shares. The Series A Stock has a face value of $100 per share and a liquidation preference in such amount in priority over our 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 our discretion. We expect to pay such dividends in kind for the foreseeable future. Holders of shares of the Series A Stock vote on most matters on an “as converted” basis, together with the holders of Class A and Class B common stock. During 2002, we completed a series of private placements to issue 110,000 units for an aggregate purchase price of $11,000. Each unit consists of one share of Series A Stock and 6.25 warrants to acquire an equal number of shares of Class A common stock. The warrants are exercisable at any time from the date of grant and expire at various times in 2007. We allocated the net proceeds of approximately $10,230 from the sale of Series A Stock between the convertible preferred stock and the warrants, both of which are classified in additional paid in capital. We incurred approximately $770 in legal and other costs directly related to the private placements. A stock dividend for the Series A Stock in the amount of 4,934 and 4,744 was paid as of May 1, 2006 and 2005, respectively.

Each share of Class B common stock is convertible into one share of Class A common stock at the option of the holder or automatically under certain circumstances. Each share of the Class B common stock is entitled to 10 votes per share in all matters presented to the shareholders, except for certain amendments to the Restated Certificate of Incorporation, certain “going private” transactions and as otherwise required by applicable law. The shares of Class A common stock are entitled to one vote per share on all matters.

Long-term debt at June 30, 2006 was comprised of $99,000 in 10.0% Senior Subordinated Notes due July 1, 2008 (the “Notes”). As of June 30, 2006, there was no outstanding balance on the $10,000 senior secured revolving credit facility, as described below.

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.

We capitalized $4,689 of costs incurred in the offering of the Notes which is being amortized over the ten year life of the Notes. At June 30, 2006, the remaining balance is $935.

We have a $10,000 senior secured revolving credit facility with Commerce Bank, N.A. that enables us to efficiently manage our cash, as we may borrow, repay and re-borrow funds as needed. The term of the credit facility expires on December 31, 2007. 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”, defined in the Loan and Security Agreement for any period as: (a) Net Income (Loss), plus (b) all taxes on income plus state and local franchise and corporation taxes paid by the Borrower 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, but plus Contract Termination Revenue received in cash and (i) less Contract Acquisition Payments, in each case for such period, in each case in connection with Borrower and its Subsidiaries, on a consolidated basis); (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 and an additional $200 of such costs related to an amendment of the revolving credit facility in July 2005, which are being amortized as interest expense over the life of the extended facility. Substantially all of our subsidiaries, jointly, severally and unconditionally guarantee the credit facility.

We are 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.

We maintain some of our cash in bank deposit accounts, money market funds and certificates of deposits, which at June 30, 2006 exceeded federally insured limits by approximately $17,328. These accounts are maintained in high credit quality financial institutions in order to reduce the risk of potential losses. We historically have not experienced any losses in these accounts.

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.

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.

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.

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.

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. 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.

In November 2005, we entered into the television representation business by organizing Azteca America Spot Television Sales, Inc. (“Azteca Television Sales”), a dedicated television representation company for the Azteca America network. As with radio representation, we sell advertising on behalf of our television clients.

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.

Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005

Commission revenues. Commission revenues for the second quarter of 2006 decreased to $18.9 million from $21.7 million for the second quarter of 2005, or approximately 12.9%. The majority of this $2.8 million decrease can be attributed to the termination of our Cumulus Broadcasting, Inc. and Radio One, Inc. representation contracts in 2005.

Contract termination revenue. Contract termination revenue in the second quarter of 2006 decreased by $12.9 million, to $0.3 million from $13.2 million in the second quarter of 2005. The value of contracts terminated in 2006 was minimal as compared to the Cumulus Broadcasting Inc. contract terminated in May 2005.

Selling expenses. Selling expenses for the second quarter of 2006 increased to $17.0 million from $16.4 million in the second quarter of 2005. This increase of $0.6 million, or approximately 3.6%, was, in large part, due to a one-time bonus paid to an executive of the Company’s interactive subsidiary, as required by the bonus provisions of his employment agreement relating to the sale of the Burst Media investment and organizational costs related to Azteca Television Sales, offset in part by lower compensation costs in 2006 as compared to 2005.

General and administrative expenses. General and administrative expenses of $3.3 million for the second quarter of 2006 increased $0.4 million, or 12.0%, from $2.9 million for the second quarter of 2005 primarily due to the expenses previously capitalized in connection with a proposed, but unconsummated transaction with Oaktree Capital Management in 2006.

Operating (loss) income before depreciation and amortization. For the second quarter of 2006, there was an operating loss before depreciation and amortization of $1.1 million, as compared to operating income before depreciation and amortization of $15.6 million for the second quarter of 2005. This was a change of $16.7 million, for the reasons discussed above. Operating (loss) income before depreciation and amortization is not a measure of performance calculated in accordance with Generally Accepted Accounting Principles (“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 industry.

Reconciliation of net income to operating (loss) income before depreciation and amortization

Depreciation and amortization expense. Depreciation and amortization expense decreased $3.8 million, or 54.1%, during the second quarter of 2006, to $3.3 million from $7.1 million in the second quarter of 2005. This decrease was substantially the result of the $3.3 million write-off in 2005 of deferred representation contract costs related to the termination of the Cumulus representation contract and lower contract acquisition cost amortization in 2006.

Operating (loss) income. For the second quarter of 2006, we had $4.3 million of operating loss as compared to operating income of $8.5 million for the second quarter of 2005, for the reasons discussed above.

Interest expense, net. Interest expense, net, increased $0.3 million, or 11.8%, to $2.9 million for the second quarter of 2006, from $2.6 million for the second quarter of 2005. This increase primarily resulted from the discount taken in connection with the settlement with Katz Communications, Inc. of certain representation contract buyout receivables and payables described below.

Gain on sale of investment. On April 21, 2006, we sold our investment in Burst Media in conjunction with its initial public offering. We realized net proceeds of approximately $9.9 million on the sale. The carrying value of the investment at the time of sale was approximately $2.0 million.

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 second quarter of 2006 was $0.1 million, as compared to less than $0.1 million for the comparable 2005 period.

Preferred stock dividend. We accrued $0.1 million for preferred stock dividends in the second quarter of 2006 and 2005. All dividends are paid in additional shares of preferred stock and not in cash.

Net income applicable to common shareholders. Our net income applicable to common shareholders decreased $5.4 million, or 91.3%, to $0.5 million for the second quarter of 2006, from $5.9 million for the second quarter of 2005, for the reasons discussed above.

Commission revenues. Commission revenues for the first six months of 2006 decreased to $34.1 million from $39.2 million for the first six months of 2005, or approximately 13.1%. The majority of this $5.1 million decrease can be attributed to the termination of our Cumulus Broadcasting, Inc. and Radio One, Inc. representation contracts in 2005.

Contract termination revenue. Contract termination revenue in the first six months of 2006 decreased by $13.0 million to $0.4 million from $13.4 million in the first six months of 2005. The value of contracts terminated in 2006 was minimal as compared to the Cumulus Broadcasting Inc. contract terminated in May 2005.

Selling expenses. Selling expenses for the first six months of 2006 increased to $32.4 million from $30.3 million in the first six months of 2005. This increase of $2.1 million, or approximately 7.0%, was, in large part, due to a one-time bonus paid to an executive of the Company’s interactive subsidiary, as required by the bonus provisions of his employment agreement relating to the sale of the Burst Media investment, costs associated with 2006 severance programs and the Azteca Television organizational costs, offset in part by lower compensation costs in 2006 as compared to 2005.

General and administrative expenses. General and administrative expenses of $6.0 million for the first six months of 2005 increased $0.3 million, or 5.6%, from $5.7 million for the first six months of 2005 primarily due to the expenses previously capitalized in connection with a proposed, but unconsummated transaction with Oaktree Capital Management in 2006.

Operating (loss) income before depreciation and amortization. For the first six months of 2006, there was an operating loss before depreciation and amortization of $4.0 million, as compared to operating income before depreciation and amortization of $16.6 million for the first six months of 2005. This was a change of $20.6 million, for the reasons discussed above.

Reconciliation of net (loss) income to operating (loss) income before depreciation and amortization

Depreciation and amortization expense. Depreciation and amortization expense decreased $4.3 million, or 38.6%, during the first six months of 2006, to $6.8 million from $11.1 million in the first six months of 2005. This decrease was substantially the result of the $3.3 million write-off in 2005 of deferred representation contract costs related to the termination of the Cumulus representation contract and lower contract acquisition cost amortization in 2006.

Operating (loss) income. For the first six months of 2006, we had $10.8 million of operating loss as compared to operating income of $5.5 million for same period of 2005, for the reasons discussed above.

Interest expense, net. Interest expense, net, increased $0.3 million, or 5.5%, to $5.4 million for the first six months of 2006, from $5.1 million for the first six months of 2005. This increase primarily resulted from the discount taken in connection with the settlement with Katz Communications, Inc. of certain representation contract buyout receivables and payables described below.

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 six months of 2006 was $0.2 million, as compared to $0.1 million for the first six months of 2005.

Preferred stock dividend. We accrued $0.2 million for preferred stock dividends in the first six months of 2006 and 2005. All dividends are paid in additional shares of preferred stock and not in cash.

Net (loss) income applicable to common shareholders. We had net loss applicable to common shareholders of $8.7 million for the first six months of 2006 as compared to a net income applicable to common shareholders of $0.1 million for comparable period of 2005, a change of $8.8 million, for the reasons discussed above.

Our cash requirements have been primarily funded by cash provided from operations and investing transactions. At June 30, 2006, we had cash and cash equivalents of $18.4 million and working capital of $22.9 million and $10 million available under our credit facility.

Net cash provided by operating activities during the first six months of 2006 was $5.5 million, as compared to $0.1 million during the first six months of 2005. This fluctuation was primarily attributable to changes in working capital components, including decreases in representation contracts receivable of $16.9 million, primarily from the accelerated Katz Communications payments, which were offset by decreases in accounts payable and accrued expenses of $3.7 million and accrued employee-related liabilities of $2.0 million.

Net cash provided by investing activities during the first six months of 2006 was $9.7 million and primarily consisted of $9.9 million in proceeds from the sale of an investment, partially offset by capital expenditure of $0.2 million. Net cash used in investing activities for the first six months of 2005 was $0.3 million and consisted of capital expenditures. The payments made for capital expenditures in 2005 included $0.1 million, which was capitalized in 2003.

Cash used in financing activities of $3.9 million during the first six months of 2006 consisted of $7.5 million of gross repayments on the credit facility offset by $7.5 million of gross borrowings and $3.9 million in payments on representation contract acquisitions. Cash provided by financing activities of $1.2 million during the first six months of 2005 consisted of $15.5 million of gross repayments on the credit facility offset by $12.8 million of gross borrowings and offset by $1.5 million in payments on representation contract acquisitions.

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.

Our 10% Senior Subordinated Notes, due July 1, 2008 (the “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 Notes. Management believes that we are in compliance with these covenants.

The 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 Notes at a price equal to 101% of their aggregate principal, plus unpaid interest.

We have a $10 million senior secured revolving credit facility with Commerce Bank, N.A. that enables us to efficiently manage our cash, as we may borrow, repay and re-borrow funds as needed. The term of the credit facility expires on December 31, 2007. 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”, defined in the Loan and Security Agreement for any period as: (a) Net Income (Loss), plus (b) all taxes on income plus state and local franchise and corporation taxes paid by the Borrower 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, but plus Contract Termination Revenue received in cash and (i) less Contract Acquisition Payments, in each case for such period, in each case in connection with Borrower and its Subsidiaries, on a consolidated basis); (ii) have a certain minimum accounts receivable balance 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 not less than $2 million 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 $0.5 million in legal and other costs directly related to the revolving credit facility and an additional $0.2 million of such costs related to an amendment of the revolving credit facility in July 2005, which are being amortized as interest expense over the life of the extended facility. Substantially all of our subsidiaries, jointly, severally and unconditionally guarantee the credit facility. At June 30, 2006, we had $10 million available under our credit facility.

The Amendment was entered into on July 21, 2005. The principal change effected by the Amendment was to extend the term of our revolving credit facility from September 25, 2006 through December 31, 2007. The Amendment also revised certain of the financial covenants to more appropriately reflect our current business operations. It also revised the definition of “Operating EBITDA” as for any period: (a) Net Income (Loss), plus (b) all taxes on income plus state and local franchise and corporation taxes paid by the Borrower 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, but plus Contract Termination Revenue received in cash and (i) less Contract Acquisition Payments, in each case for such period, in each case in connection with Borrower and its Subsidiaries, on a consolidated basis.

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.

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.

In June 2006, we agreed with Katz Communications, Inc. to accelerate the payment of certain representation contract buyout receivables, net of certain representation contract buyout payables. This lump sum payment was discounted approximately $0.4 million and is included in the $18.4 million cash balance at June 30, 2006.

During 2004, 2005 and 2006, we implemented various cost efficiency measures, including the termination of several employees. Our liquidity and cash flows will be positively affected by these reductions. It is anticipated that our operations over the long term will further benefit from these terminations as well as the other material cost efficiency measures such as lease renegotiations and reductions in consulting, which were implemented in 2004 and 2005.

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

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 2005 Annual Report on Form 10-K, filed on March 31, 2006, in the Notes to the Consolidated Financial Statements, Note 1, and the Critical Accounting Policies section of Item 7 of Part II.

In December 2004, the FASB issued SFAS No. 123R, which revised SFAS No. 123 and supersedes APB 25. In March 2005, the Securities and Exchange Commission (“SEC”) issued SAB 107, which provides interpretive guidance on SFAS No. 123R. Accounting and reporting under SFAS No. 123R is generally similar to the SFAS No. 123 approach. We adopted SFAS 123R on January 1, 2006, under the modified prospective

method. For additional information related to No. SFAS 123R, see the Notes to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q.

We have no off balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

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 2006 earnings to date.

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(c) under that Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, our Chairman and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2006.

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 second quarter of 2006 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.

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 or operations.

See “Certain Risk Factors That May Affect Our Results of Operations — Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes in risk factors relevant to us from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2005.

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

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.


INTEREP NATIONAL RADIO SALES, INC.

By:		/s/ WILLIAM J. MCENTEE, JR.
		William J. McEntee, Jr.
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)


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)


	June 30, 2006			December 31, 2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,363		$	6,928
Receivables, less allowance for doubtful accounts of $589 and $623		17,839			20,905
Representation contract buyouts receivable		207			12,054
Current portion of deferred representation contract costs		9,415			11,082
Prepaid expenses and other current assets		1,198			1,616

Total current assets		47,022			52,585

Fixed assets, net		2,731			3,594
Deferred representation contract costs		17,857			21,799
Representation contract buyouts receivable		38			5,123
Investments and other assets		3,805			5,858

	$	71,453		$	88,959

LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	15,382		$	19,287
Accrued interest		4,950			4,950
Representation contract buyouts payable		1,485			5,135
Accrued employee-related liabilities		2,330			4,358

Total current liabilities		24,147			33,730
Long-term debt		99,000			99,000
Representation contract buyouts payable		855			1,063
Other noncurrent liabilities		4,086			3,644

Total liabilities		128,088			137,437

Capital deficit:
4% Series A cumulative convertible preferred stock, $0.01 par value—400,000 shares authorized, 128,276 and 123,342 shares issued and outstanding at June 30, 2006 and December 31, 2005 (aggregate liquidation preference—$12,828)		1			1
Class A common stock, $0.01 par value—20,000,000 shares authorized, 7,302,122 and 7,022,446 shares issued and outstanding at June 30, 2006 and December 31, 2005		73			70
Class B common stock, $0.01 par value—10,000,000 shares authorized, 3,993,754 and 4,273,430 shares issued and outstanding at June 30, 2006 and December 31, 2005, convertible into Class A common stock		40			43
Additional paid-in-capital		52,783			52,512
Accumulated deficit		(109,532	)		(101,104	)

Total capital deficit		(56,635	)		(48,478	)

	$	71,453		$	88,959


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2006			2005			2006			2005
Commission revenues	$	18,900		$	21,718		$	34,035		$	39,165
Contract termination revenue		270			13,189			380			13,415

Total revenues		19,170			34,907			34,415			52,580

Operating expenses:
Selling expenses		16,955			16,367			32,411			30,289
General and administrative expenses		3,260			2,910			6,042			5,722
Depreciation and amortization expense		3,248			7,082			6,795			11,059

Total operating expenses		23,463			26,359			45,248			47,070

Operating (loss) income		(4,293	)		8,548			(10,833	)		5,510
Gain on sale of investment		7,965			—			7,965			—
Net undistributed earnings in equity investee		—			89			93			166
Interest expense, net		(2,894	)		(2,588	)		(5,435	)		(5,153	)

Income (loss) before provision for income taxes		778			6,049			(8,210	)		523
Provision for income taxes		136			37			218			141

Net income (loss)		642			6,012			(8,428	)		382
Preferred stock dividend		127			121			250			240

Net income (loss) applicable to common shareholders	$	515		$	5,891		$	(8,678	)	$	142

Basic and fully diluted income (loss) per share applicable to common shareholders	$	0.05		$	0.52		$	(0.77	)	$	0.01


	For the Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net (loss) income	$	(8,428	)	$	382
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		6,795			11,059
Amortization of renewal payments		219			103
Net undistributed earnings in equity investee		(93	)		(166	)
Gain on sale of investment		(7,965	)		—
Non-cash compensation expense		28			—
Changes in assets and liabilities:
Receivables		3,066			3,219
Representation contract buyouts receivable		16,932			(12,217	)
Prepaid expenses and other current assets		418			192
Other noncurrent assets		(169	)		(8	)
Accounts payable and accrued expenses		(3,662	)		(1,793	)
Accrued interest		—			16
Accrued employee-related liabilities		(2,028	)		(512	)
Other noncurrent liabilities		442			(128	)

Net cash provided by operating activities		5,555			147

Cash flows from investing activities:
Additions to fixed assets		(177	)		(328	)
Proceeds from sale of investment		9,947			—

Net cash provided by (used in) investing activities		9,770			(328	)

Cash flows from financing activities:
Station representation contract payments		(3,890	)		(1,546	)
Gross borrowings on credit facility		7,549			15,500
Gross repayments on credit facility		(7,549	)		(12,750	)

Net cash (used in) provided by financing activities		(3,890	)		1,204

Net increase in cash and cash equivalents		11,435			1,023
Cash and cash equivalents, beginning of period		6,928			4,937

Cash and cash equivalents, end of period	$	18,363		$	5,960

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	4,962		$	4,964
Income taxes		218			141
Non-cash investing and financing activities:
Station representation contracts acquired	$	31		$	384
Preferred stock dividend		250			240


	June 30, 2005
Net income (loss) applicable to common shareholders, as reported	$	142
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(403	)

Pro forma net loss	$	(261	)

Income (loss) per share:
Basic and diluted—as reported	$	0.01
Basic and diluted—pro forma	$	(0.02	)


	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options Outstanding at January 1, 2006	4,508,885		$	2.00	—	$	2
Granted	20,000			0.36	—		3
Exercised	—			—	—		—
Cancelled	(320,900	)		1.87	—		—

Options Outstanding at June 30, 2006	4,207,985		$	2.00	6.5	$	5

Exercisable at June 30, 2006	4,152,983		$	2.01	6.5	$	3


	June 30, 2006			June 30, 2005
	(dollars in thousands)
Net income	$	515		$	5,891
Add back:
Depreciation and amortization		3,248			7,082
Preferred stock dividend		127			121
Tax provision		136			37
Gain on sale of investment		(7,965	)		—
Net undistributed earnings in equity investee		—			(89	)
Interest expense, net		2,894			2,588

Operating (loss) income before depreciation and amortization	$	(1,045	)	$	15,630


	Payments Due by Period
	Total		Remainder 2006		2007-2008		2009-2010		2011- Thereafter
	(Dollars in Millions)
Long term debt	$	99.0	$	—	$	99.0	$	—	$	—
Operating leases		43.3		2.4		9.0		6.4		25.5
Interest expense		24.7		4.9		19.8		—		—
Annual fees for accounting services		15.5		1.8		7.8		5.9		—
Representation contract buyouts		2.3		0.9		1.0		0.4		—

Total	$	184.8	$	10.0	$	136.6	$	12.7	$	25.5


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 of Chief Executive Officer 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)*

32.2		Certification of Chief Financial Officer 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)*