##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

| |  |                                                                                                                                          
| |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2000

OR

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

For the transition period from __________________ to ___________________

Commission file number: 0-27575

NETRADIO CORPORATION
(Exact name of registrant as specified in its charter)

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|----------------------------------------------- |  | ------------------------------------
|Minnesota                                       |  | 41-1819471                          
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|(State of incorporation or organization)        |  | (I.R.S. Employer Identification No.)
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|10025 Valley View Road, Eden Prairie, Minnesota |  | 55344                               
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|(Address of principal executive offices)        |  | (Zip Code)                          

(952) 259-6700

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(Registrants telephone number, including area code)

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         No

The number of shares outstanding of each of the registrants classes of capital stock, as of
November 13, 2000 was: Common Stock, no par value, 10,031,037 shares.

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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                                                                 
|ITEM 1. FINANCIAL STATEMENTS                                                                 
|BALANCE SHEETS - SEPTEMBER 30, 2000 AND DECEMBER 31, 1999                                    
|STATEMENTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999    
|STATEMENT OF CASH FLOWS - NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999                      
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 2000                    
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION                                                                   
|ITEM 1. LEGAL PROCEEDINGS                                                                    
|ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS                                             
|ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|ITEM 5. OTHER INFORMATION                                                                    
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                   
|Employment Agreement                                                                         
|Employment Agreement                                                                         
|Employment Agreement                                                                         
|Financial Data Schedule                                                                      



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NETRADIO CORPORATION
Index

|                                |  |                                                                                      
|------------------------------- |  | -------------------------------------------------------------------------------------
|Part I    Financial Information
|                               
|                               
|                               
|                               
|Item 1.                         |  | Financial Statements                                                                 
|                               
|                               
|                               
|                               
|                                |  | Balance Sheets -                                                                     
|                               
|                               
|                               
|                               
|                                |  | September 30, 2000 and December 31, 1999                                             
|                               
|                               
|                               
|                               
|                                |  | Statements of Operations -                                                           
|                               
|                               
|                               
|                               
|                                |  | Three months and nine months ended September 30, 2000 and 1999                       
|                               
|                               
|                               
|                               
|                                |  | Statements of Cash Flows -                                                           
|                               
|                               
|                               
|                               
|                                |  | Nine months ended September 30, 2000 and 1999                                        
|                               
|                               
|                               
|                               
|                                |  | Notes to Condensed Consolidated Financial Statements - September 30, 2000            
|                               
|                               
|                               
|                               
|Item 2.                         |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations
|                               
|                               
|                               
|                               
|Item 3.                         |  | Quantitative and Qualitative Disclosures About Market Risk                           
|                               
|                               
|                               
|                               
|Part II.                        |  | Other Information                                                                    
|                               
|                               
|                               
|                               
|Item 1.                         |  | Legal Proceedings                                                                    
|                               
|                               
|                               
|                               
|Item 2.                         |  | Change in Securities and Use of Proceeds                                             
|                               
|                               
|                               
|                               
|Item 3.                         |  | Defaults Upon Senior Securities                                                      
|                               
|                               
|                               
|                               
|Item 4.                         |  | Submission of Matters to a Vote of Security Holders                                  
|                               
|                               
|                               
|                               
|Item 5.                         |  | Other Information                                                                    
|                               
|                               
|                               
|                               
|Item 6.                         |  | Exhibits and Reports on Form 8-K                                                     
|                               
|                               
|                               
|                               
|Signatures                     

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##### Table of Contents



|                              
|------------------------------
|PART I  FINANCIAL INFORMATION
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|Item 1. Financial Statements  

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##### Table of Contents



NetRadio Corporation




Balance Sheets

|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |             |            | 
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------- | ------------- | ---------- | ------------ | ---------- | ----------- | ---------- | 
|                                                          |                                                                                                                                                            |                                                                                                                    |            | September 30, |            | December 31,
|                                                          |                                                                                                                                                            |                                                                                                                    |            | 2000          |            | 1999        
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |             
|Assets                                                    |                                                                                                                                                            |                                                                                                                    | (Unaudited | )            
|                                                         
|                                                         
|                                                         
|                                                         
|Current assets:                                          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash and cash equivalents                                                                                                                                  |                                                                                                                    | $          | 28,350        |            |              | $          | 11,721,536  |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Short-term investments                                                                                                                                     |                                                                                                                    |            | 13,887,756    |            |              |            | 17,845,905  |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Trade accounts and notes receivable, less allowance for doubtful
accounts of $13,000 at September 30, 2000, and $55,000 at
December 31, 1999, respectively |                                                                                                                    |            | 300,061       |            |              |            | 146,863     |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Prepaid advertising                                                                                                                                        |                                                                                                                    |            | 813,381       |            |              |            | 802,793     |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Prepaid expenses                                                                                                                                           |                                                                                                                    |            | 115,809       |            |              |            | 97,420      |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other current assets                                                                                                                                       |                                                                                                                    |            | 540,667       |            |              |            | 372,220     |           
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|Total current assets                                      |                                                                                                                                                            |                                                                                                                    | 15,686,024 |               |            |              | 30,986,737 |            
|                                                         
|                                                         
|                                                         
|                                                         
|Property and equipment, net                               |                                                                                                                                                            |                                                                                                                    | 3,290,197  |               |            |              | 2,626,227  |            
|                                                         
|                                                         
|                                                         
|                                                         
|Patents and trademarks, net                               |                                                                                                                                                            |                                                                                                                    | 42,186     |               |            |              |           |            
|                                                         
|                                                         
|                                                         
|                                                         
|Note receivable                                           |                                                                                                                                                            |                                                                                                                    | 65,851     |               |            |              | 62,141     |            
|                                                         
|                                                         
|                                                         
|                                                         
|Other assets                                              |                                                                                                                                                            |                                                                                                                    | 120,254    |               |            |              |           |            
|                                                         
|                                                         
|                                                         
|                                                         
|Goodwill, net                                             |                                                                                                                                                            |                                                                                                                    |           |               |            |              | 106,000    |            
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|                                                          |                                                                                                                                                            | $                                                                                                                  | 19,204,512 |               |            | $            | 33,781,105 |            
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|Liabilities and
shareholders equity
Current Liabilities:
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accounts payable                                                                                                                                           |                                                                                                                    | $          | 1,163,354     |            |              | $          | 3,152,859   |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accrued expenses                                                                                                                                           |                                                                                                                    |            | 1,108,040     |            |              |            | 853,435     |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Deferred advertising revenue                                                                                                                               |                                                                                                                    |            |              |            |              |            | 4,764       |           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Current maturities of capital
lease obligations                                                                                                            |                                                                                                                    |            | 116,203       |            |              |            | 115,223     |           
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|Total current liabilities                                 |                                                                                                                                                            |                                                                                                                    | 2,387,597  |               |            |              | 4,126,281  |            
|                                                         
|                                                         
|                                                         
|                                                         
|Note payable                                              |                                                                                                                                                            |                                                                                                                    | 9,596,827  |               |            |              | 9,596,827  |            
|                                                         
|                                                         
|                                                         
|                                                         
|Capital lease obligations, less current portion           |                                                                                                                                                            |                                                                                                                    | 3,116      |               |            |              | 89,630     |            
|                                                         
|                                                         
|                                                         
|                                                         
|Shareholders equity:                                    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Preferred stock;
      Authorized shares   10,000,000                                                                                                    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                                                            | Issued and outstanding shares  none
at September 30, 2000 and
December 31, 1999                                  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock, no par value;
      Authorized shares   50,000,000                                                                                         
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                                                                                                                                            | Issued and outstanding shares - 10,031,037 at September 30, 2000 and
10,007,900 at December 31, 1999, respectively |            |               | 41,001,632 |              |            |             | 40,930,243 | 
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Accumulated deficit                                                                                                                                        |                                                                                                                    |            | (33,784,660   | )          |              |            | (20,961,876 | )         
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|Total shareholders equity                                |                                                                                                                                                            |                                                                                                                    | 7,216,972  |               |            |              | 19,968,367 |            
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            
|Total liabilities and shareholders equity                |                                                                                                                                                            | $                                                                                                                  | 19,204,512 |               |            | $            | 33,781,105 |            
|                                                          |                                                                                                                                                            |                                                                                                                    |            |               |            |              |            |            

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##### Table of Contents



NetRadio Corporation




Statements of Operations

|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |           |  
|----------------------------------- | -------------------------------- | - | ------------------- | ----------- | ------------------ | - | ---------- | --------- | ---- | ----------- | ----------- | ---------- | - | - | ---------- | --------- | -
|                                    |                                  |   | Three Months Ending |             | Nine Months Ending
|                                    |                                  |   | September 30,       |             | September 30,     
|                                    |                                  |   |                     |             |                   
|                                    |                                  |   | 2000                |             | 1999               |   | 2000       |           | 1999
|                                    |                                  |   |                     | (unaudited) |                    |   |            |           |      | (unaudited) |            
|                                   
|                                   
|                                   
|                                   
|Net revenues                       
|                                    | Product sales                    |   | $                   | 134,338     |                    |   | $          | 172,220   |      |             | $           | 567,973    |   |   | $          | 430,827   |  
|                                   
|                                   
|                                   
|                                   
|                                    | Internet advertising             |   |                     | 322,097     |                    |   |            | 201,854   |      |             |             | 1,069,521  |   |   |            | 348,912   |  
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|                                    | Total net revenues               |   |                     | 456,435     |                    |   |            | 374,074   |      |             |             | 1,637,494  |   |   |            | 779,739   |  
|                                   
|                                   
|                                   
|                                   
|Cost of revenues                    |                                  |   | 121,753             |             |                    |   | 158,232    |           |      |             | 522,088     |            |   |   | 400,648    |          
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|Gross profit                        |                                  |   | 334,682             |             |                    |   | 215,842    |           |      |             | 1,115,406   |            |   |   | 379,091    |          
|                                   
|                                   
|                                   
|                                   
|Operating expenses                 
|                                    | Operations and technical support |   |                     | 2,391,042   |                    |   |            | 2,207,737 |      |             |             | 7,558,092  |   |   |            | 4,450,656 |  
|                                   
|                                   
|                                   
|                                   
|                                    | Sales and marketing              |   |                     | 1,904,632   |                    |   |            | 1,168,427 |      |             |             | 4,630,928  |   |   |            | 1,958,271 |  
|                                   
|                                   
|                                   
|                                   
|                                    | General and administrative       |   |                     | 590,722     |                    |   |            | 768,476   |      |             |             | 2,149,634  |   |   |            | 2,793,145 |  
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|                                    | Total operating expenses         |   |                     | 4,886,396   |                    |   |            | 4,144,640 |      |             |             | 14,338,654 |   |   |            | 9,202,072 |  
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|Loss from operations                |                                  |   | (4,551,714          | )           |                    |   | (3,928,798 | )         |      |             | (13,223,248 | )          |   |   | (8,822,981 | )        
|                                   
|                                   
|                                   
|                                   
|Other
(income) expenses            
|                                    | Interest (Income)                |   |                     | (410,829    | )                  |   |            | (1,278    | )    |             |             | (1,099,585 | ) |   |            | (1,278    | )
|                                   
|                                   
|                                   
|                                   
|                                    | Interest Expense                 |   |                     | 242,786     |                    |   |            | 289,328   |      |             |             | 699,121    |   |   |            | 603,484   |  
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|Net loss                            |                                  | $ | (4,383,671          | )           |                    | $ | (4,216,848 | )         |      | $           | (12,822,784 | )          |   | $ | (9,425,187 | )        
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|Loss per share-basic and diluted:   |                                  | $ | (0.44               | )           |                    | $ | (0.71      | )         |      | $           | (1.28       | )          |   | $ | (1.59      | )        
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          
|Weighted average shares outstanding |                                  |   | 10,019,687          |             |                    |   | 5,925,249  |           |      |             | 10,013,512  |            |   |   | 5,925,249  |          
|                                    |                                  |   |                     |             |                    |   |            |           |      |             |             |            |   |   |            |          

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##### Table of Contents



NetRadio Corporation




Statements of Cash Flows

|                                                                                         |                                      |                                                     |             |                   |             |      |            |            |            |  
|---------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------- | ----------- | ----------------- | ----------- | ---- | ---------- | ---------- | ---------- | -
|                                                                                         |                                      |                                                     |             | Nine Months Ended
|                                                                                         |                                      |                                                     |             | September 30,    
|                                                                                         |                                      |                                                     |             |                  
|                                                                                         |                                      |                                                     |             | 2000              |             | 1999
|                                                                                         |                                      |                                                     |             |                   |             |     
|                                                                                         |                                      |                                                     |             | (unaudited)      
|Operating activities                                                                    
|Net loss                                                                                 |                                      | $                                                   | (12,822,784 | )                 |             | $    | (9,425,186 | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Depreciation and amortization        |                                                     |             | 1,430,111         |             |      |            | 773,290    |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Stock option compensation            |                                                     |             | 57,989            |             |      |            | 1,138,625  |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Change in operating assets and liabilities:                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accounts receivable                  |                                                     |             | (153,198          | )           |      |            | (170,595   | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Prepaid expenses                     |                                                     |             | (28,978           | )           |      |            | 5,536      |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Trade accounts payable               |                                                     |             | (1,989,506        | )           |      |            | 718,827    |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accrued liabilities and other        |                                                     |             | 254,605           |             |      |            | 1,501,143  |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred revenue                     |                                                     |             | (4,764            | )           |      |            | 241,476    |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other assets                         |                                                     |             | (288,701          | )           |      |            | (595,554   | )         
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|                                                                                         |                                      | Net cash used in operating activities               |             |                   | (13,545,226 | )    |            |            | (5,812,438 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Investing activities                                                                    
|                                                                                         | Note receivable  officer            |                                                     |             | (3,710            | )           |      |            | (3,721     | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchase of property and equipment   |                                                     |             | (1,988,079        | )           |      |            | (1,452,467 | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchase of patents and trademarks   |                                                     |             | (42,186           | )           |      |            |           |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchase of short-term investments   |                                                     |             | (18,033,229       | )           |      |            |           |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Sale of short-term investments       |                                                     |             | 21,991,378        |             |      |            |           |           
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|                                                                                         |                                      | Net cash provided by (used in) investing activities |             |                   | 1,924,174   |      |            |            | (1,456,188 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Financing activities                                                                    
|                                                                                         | Payment on capital lease obligations |                                                     |             | (85,534           | )           |      |            | (70,198    | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred offering costs              |                                                     |             |                  |             |      |            | (664,559   | )         
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Proceeds from stock issuances        |                                                     |             | 13,400            |             |      |            | 16,200     |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Advances from Navarre                |                                                     |             |                  |             |      |            | 8,023,786  |           
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|                                                                                         |                                      | Net cash provided by financing activities           |             |                   | (72,134     | )    |            |            | 7,305,229  |  
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|Net increase in cash and cash equivalents                                                |                                      |                                                     | (11,693,186 | )                 |             |      | 36,603     |           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cash and cash equivalents at beginning of period                                         |                                      |                                                     | 11,721,536  |                   |             |      | 50,756     |           
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|Cash and cash equivalents at end of period                                               |                                      | $                                                   | 28,350      |                   |             | $    | 87,359     |           
|                                                                                         |                                      |                                                     |             |                   |             |      |            |           
|Fixed assets aquired under capital lease                                                 |                                      | $                                                   |            |                   |             | $    | 82,175     |           

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##### Table of Contents



NETRADIO CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. They should be read in conjunction with the financial
statements for the year ended December 31, 1999 included in the Companys 1999 Form 10K. In the opinion of
management, the interim condensed financial statements include all adjustments (consisting of normal recurring
accruals) necessary for the fair presentation of the results for interim periods presented. Operating results for
the nine months ended September 30, 2000 are not necessarily indicative of the operating results for the year ending
December 31, 2000.

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##### Table of Contents









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

GENERAL

NetRadio Corporation is a media company that is the leading online distributor of originally programmed
audio entertainment. Through our premier Website, www.Netradio.com, we leverage the attributes of traditional radio,
publishing and direct marketing with the connectivity and interactivity of the Internet.

In the third quarter ended
September 30, 2000, approximately 2.1 million average monthly unique guests
visited several times per month to enjoy our more than 100 channels of music and information on demand, 24 hours a
day, seven days a week, and spent an average of 1.5 hours per daily visit.

The site connects with music enthusiasts through 15 interactive music communities ranging from Jazz, Modern
Rock and New Age to Vintage Rock, Country and Classical. With our on-screen player, listeners can see the title and
artist of every song as it plays. Users can simply click at any time to seamlessly purchase what theyre hearing
from an inventory of more than 250,000 music titles and 1 million sound samples at our on-line music
store.

Through our more than 100 channels of music and information, we provide our advertising and marketing
partners the ability to reach focused segments of users defined by specific demographic and lifestyle
characteristics. In addition, our site allows advertisers to utilize the combined strength of audio messaging with
banner advertising, closing the loop between message and action.

RESULTS OF OPERATIONS

Net Revenues

Net revenues consist of product sales and Internet advertising revenues. Net revenues increased to
$456,000 for the three months ended September 30, 2000 from $374,000 for the three months ended September 30, 1999,
a 22% increase. Net revenues increased to $1,637,000 for the nine months ended September 30, 2000 from $780,000 for
the nine months ended September 30, 1999, a 110% increase. The increase in revenues for both the three and nine
months ended September 30, 2000, over the prior year periods was mostly attributable to the increase in traffic to
the site. For the three months ended September 30, 2000, monthly average unique guests numbered 2.1 million, from
1.0 million at September 30, 1999, a 110% increase.

Product Sales. Product sales include sales of audio merchandise, as well as shipping and handling costs.
Product sales for the three months ended September 30, 2000 were $134,000 compared with $172,000 for the three
months ended September 30, 1999, a decrease of 22%. Product sales for the nine months ended September 30, 2000 were
$568,000 compared with $431,000 for the nine months ended September 30, 1999, an increase of 31%. The decrease in
product sales for the three months ended September 30, 2000, over the prior year period was primarily due to a
decrease in new product releases from popular artists. The increase in product sales for the nine months ended
September 30, 2000, over the prior year period was due to the increase in site traffic, coupled with an increase in
our shopper and buyer conversion rates.

Internet Advertising. Internet advertising revenues include audio, video and banner advertising sales as
well as promotional advertising revenues. Internet advertising revenues for the three months ended September 30,
2000 were $322,000 compared to $202,000 for the three months ended September 30, 1999, an increase of 59%. Included
in these amounts were $2,000 and $9,000 of non-cash barter advertising for the three months ended September 30, 2000
and 1999, respectively. Internet advertising revenues for the nine months ended September 30, 2000 were $1,070,000
compared to $349,000 for the nine months ended September 30, 1999, an increase of 67%. Included in these amounts
were $148,000 and $9,000 of non-cash barter advertising for the nine months ended September 30, 2000 and 1999,
respectively. The increase in advertising revenue for both the three and nine months ended September 30, 2000, over
the prior year periods was due to more available ad inventory resulting from greater site traffic, higher sell
through and an increase in average cost per thousand (CPM) rates.

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Cost of Revenues

Cost of revenues primarily consists of the cost of audio merchandise that we sell, including fulfillment
costs through third party vendors that ship directly to our customers. Costs of revenues decreased to $122,000 for
the three months ended September 30, 2000 from $158,000 for the three months ended September 30, 1999. Costs of
revenues increased to $522,000 for the nine months ended September 30, 2000 from $401,000 for the nine months ended
September 30, 1999. The decrease in cost of revenue for the three months ended September 30, 2000, over the prior
year period was due to the decrease in product sales. The increase in cost of revenue for the nine months ended
September 30, 2000, over the prior year periods was due to the increased product sales associated with our online
music store.

Operating Expenses

Operations and Technical
Support. Operations and technical support expenses consist primarily of data
communications expenses, personnel expenses associated with broadcasting, software and content license fees,
operating supplies and overhead. Operations and technical support expenses were $2,391,000 for the three months
ended September 30, 2000, compared to $2,208,000 for the three months ended September 30, 1999. Operations and
technical support expenses were $7,558,000 for the nine months ended September 30, 2000, compared to $4,451,000 for
the nine months ended September 30, 1999. The increase in operations and technical support expenses for both the
three and nine months ended September 30, 2000, over the prior year periods was due primarily to the increase in
bandwidth costs associated with our growth in traffic and building of the technology and personnel infrastructure
necessary to meet listener demand and provide e-commerce opportunities to listeners.

Sales and Marketing.Sales and marketing expenses consist primarily of personnel expenses and costs
associated with the sale of advertising and the marketing of our Web site. Sales and marketing expenses were
$1,905,000 for the three months ended September 30, 2000, compared to $1,168,000 for the three months ended
September 30, 1999, an increase of 63%. Sales and marketing expenses were $4,631,000 for the nine months ended
September 30, 2000, compared to $1,958,000 for the nine months ended September 30, 1999, an increase of 136%. The
increase in sales and marketing expenses for both the three and nine months ended September 30, 2000, over the prior
year periods was due primarily to the marketing of our Web site which has resulted in the growth in traffic to our
site.

General and Administrative. General and administrative expenses consist primarily of administrative
personnel expenses, professional fees, goodwill amortization, and expenditures for facility costs. General and
administrative expenses were $591,000 for the three months ended September 30, 2000, compared to $768,000 for the
three months ended September 30, 1999. General and administrative expenses were $2,150,000 for the nine months ended
September 30, 2000, compared to $2,793,000 for the nine months ended September 30, 1999. The decrease in general and
administrative expenses for the three months ended September 30, 2000, over the three months ended September 30,
1999, was due to the recognition of $259,000 in the three months ended September 30, 1999 in non-cash compensation
expense associated with the acceleration of vesting in stock options as part of an executive officers severance
agreement, partially offset by increases in administrative personnel expenses, short-term facilities costs and
professional fees. The decrease in general and administrative expenses for the nine months ended September 30,
2000, was due to the recognition of $1,139,000 in the nine months ended September 30, 1999, in non-cash compensation
expense associated with an executive officers severance agreement and the issuance of stock options to employees
and directors with exercise prices below the estimated fair market value of our common stock on the date of grant
that did not occur in the nine months ended September 30, 2000, offset by increases in personnel expenses.

Interest expense for the three months ended September 30, 2000 was $243,000, compared to $289,000 for the
three months ended September 30, 1999. Interest expense for the nine months ended September 30, 2000 was $700,000,
compared to $604,000 for the nine months ended September 30, 1999. The decrease in interest expense for the three
months ended September 30, 2000, over the prior year period was due to a lower balance due Navarre during that
period. The increase for the nine months ended September 30, 2000, over the nine months ended September 30, 1999,
was due to a higher balance due Navarre, as well as in increase in the federal prime rate of interest, which impacts
the interest due on the Note with Navarre.

LIQUIDITY AND CAPITAL RESOURCES

Since inception we have incurred significant net losses primarily due to the costs of developing our
infrastructure, and hiring management and personnel to establish our audio channels and programming.

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The Company had working capital of $13.3 million at September 30, 2000, compared to working capital of
$26.9 million at December 31, 1999.

Net cash used in operating activities was $13,545,000 and $5,812,000 for the nine months ended September
30, 2000 and 1999, respectively. Net cash used in operating activities for the nine months ended September 30, 2000
was primarily comprised of our net losses and a decrease in accounts payable, offset in part by depreciation and
amortization.

Accounts receivable grew to
$300,000 at September 30, 2000 from $147,000 at December 31, 1999 and consisted
primarily of agency-placed advertising revenue accounts. The increase in accounts receivable was due to the increase
in advertising sales for the period. Advertising revenues placed by an agency typically are collected in 60 to 90
days. We expect advertising revenue accounts generally to be collected within 60 to 90 days in the future.

The decrease in accounts
payable to $1,163,000 at September 30, 2000 from $3,153,000 at December 31, 1999
was due primarily to payments for capital expenditures and other business expenses that became due in the quarter
ended March 31, 2000.

We generated $1,924,000 and used $1,456,000 in net cash from investing activities for the nine months ended
September 30, 2000 and 1999, respectively. The $1,924,000 in net cash provided by investing activities for the nine
months ended September 30, 2000 was the net result of short-term investment purchases and sales offset by the
purchases of property and equipment. The purchase of property and equipment resulted in the use of $1,988,000 in net
cash for the nine months ended September 30, 2000. The $1,456,000 used in net cash from investing activities for the
nine months ended September 30, 1999 was due to the purchases of property and equipment.

We used net cash for financing activities of $72,000 and generated $7,305,000 in net cash from financing
activities for the nine months ended September 30, 2000 and 1999, respectively. Net cash provided by financing
activities for the nine months ended September 30, 1999 was primarily due to the $8,024,000 in advances from
Navarre.

We believe that our current cash, cash equivalents and short-term investments will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for the next 6 to 9 months. To fund future
operations, we may need to raise additional funds, through public or private financing, or other arrangements. On
April 26, 2000, we retained Gerard Klauer Mattison & Co., Inc. to act as our exclusive financial advisor until
December 31, 2000, in connection with potential issuances of our debt or equity securities to strategic partners and
the exploration of potential strategic transactions. There can be no assurance that additional financing, if needed,
will be available on terms attractive to us, if at all. Our failure to raise capital when needed could have a
material adverse effect on our business, results of operations and financial condition. If additional funds are
raised through the issuance of equity securities, the percentage ownership of our then current shareholders will be
reduced. Furthermore, these equity securities might have rights, preferences or privileges senior to those of our
common stock.

Cautionary Statement

This Form 10-Q contains forward-looking statements within the meaning of federal securities laws. These
statements include statements regarding intent, belief, or current expectations of the Company and its management.
These forward-looking statements are not guarantees of the future performance and involve a number of risks and
uncertainties that may cause the Companys actual results to differ materially from the results discussed in these
statements. These risks and uncertainties, together with certain other factors, are discussed in the Risk Factor
section of our prospectus dated October 14, 1999 (Reg. Statement No. 333-73261).




Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We have no derivative financial instruments or derivative commodity instruments. We invest our cash and
cash equivalents and marketable securities in investment grade, highly liquid investments, consisting of money
market instruments, bank certificates of deposit, overnight investments in commercial paper, and short term
government and corporate bonds.

We are exposed to market risk from changes in the interest rate on borrowings under our term note that bears
interest from time to time at prime plus 0.5%. We do not believe that changes in interest rates on the maximum
borrowings outstanding under this term note would have a material effect on our results of operations or liquidity.

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PART II.  OTHER INFORMATION




Item 1. Legal Proceedings



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Item 2. Change in Securities and Use of Proceeds



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Item 3. Defaults Upon Senior Securities



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



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Item 5. Other Information



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Item 6. Exhibits and Reports on Form 8-K

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|A. Exhibits are included
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|10.1                     | Employment Agreement  Steven Holderman
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|10.2                     | Employment Agreement  Michael Wise    
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|10.3                     | Employment Agreement  Richard Hailey  
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|27                       | Financial Data Schedule                
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|B. Report on Form 8-K   
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has
duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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|Dated: 11/13/00 |  |    | NETRADIO CORPORATION                                                                                             
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|                |  | By | /s/ Eric H. Paulson                                                                                              
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|                |  |    | Eric H. Paulson                                                                                                  
|                |  |    | Chief Executive Officer and President
(Principal Executive Officer)                                              
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|                |  | By | /s/ Michael P. Wise                                                                                              
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|                |  |    |                                                                                                                  
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|                |  |    | Michael P. WiseSecretary, Chief Financial Officer and Vice
President
(Principal Financial and Accounting Officer)

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