##### 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 March 31, 2001

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, Suite 190, Eden Prairie, Minnesota | 55344                               
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|(Address of principal executive offices)                   | (Zip Code)                          
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|(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. [ X] Yes [] No

The number of shares outstanding of each of the registrants classes of
capital stock, as of May 14, 2001 was: Common Stock, no par value, 10,081,037
shares.

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TABLE OF CONTENTS



|                                          |  |  |  |  |  |  |  | 
|----------------------------------------- |  |  |  |  |  |  |  | 
|Balance Sheets                           
|Statements of Operations                 
|Statements of Cash Flows                 
|Notes to Financial Statements (Unaudited)
|Signatures                               
|First Amendment to Term Note             
|Second Amendment to Term Note            



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##### Table of Contents



NETRADIO CORPORATION
Index

Part I. Financial Information

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|Item 1.    |  | Financial Statements                                                 
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|           |  | Balance Sheets -                                                     
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|           |  | March 31, 2001 and December 31, 2000                                 
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|           |  | Statements of Operations -                                           
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|           |  | Three months ended March 31, 2001 and 2000                           
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|           |  | Statements of Cash Flows -                                           
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|           |  | Three months ended March 31, 2001 and 2000                           
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|           |  | Notes to Condensed Consolidated Financial Statements  March 31, 2001
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|Item 2.    |  | Managements Discussion and Analysis of Financial Condition          
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|           |  | and Results of Operations                                            
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|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk           
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|Part II    |  | Other Information                                                    
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|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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|Signatures

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##### Table of Contents



PART I  FINANCIAL INFORMATION

Item 1. Financial Statements





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NetRadio Corporation




|                                           |                                                                      |                                                                  |            |             |            |   |              |             |            | 
|------------------------------------------ | -------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------- | ----------- | ---------- | - | ------------ | ----------- | ---------- | 
|                                           |                                                                      |                                                                  |            | March 31,   |            |   | December 31, |            
|                                           |                                                                      |                                                                  |            | 2001        |            |   | 2000         |            
|                                           |                                                                      |                                                                  |            |             |            |   |              |            
|                                           |                                                                      |                                                                  |            | (Unaudited) |           
|Assets                                    
|                                          
|                                          
|                                          
|                                          
|Current assets:                           
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                            |                                                                  | $          | 24,001      |            |   | $            | 82,943      |           
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term investments                                               |                                                                  |            | 7,531,684   |            |   |              | 11,440,356  |           
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, less allowance for doubtful accounts of $21,000
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                      | at March 31, 2001 and $20,000 at December 31, 2000, respectively |            |             | 160,859    |   |              |             | 291,692    | 
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid advertising                                                  |                                                                  |            | 855,050     |            |   |              | 833,873     |           
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses                                                     |                                                                  |            | 126,337     |            |   |              | 98,948      |           
|                                          
|                                          
|                                          
|                                          
|                                           | Other current assets                                                 |                                                                  |            | 160,667     |            |   |              | 350,667     |           
|                                           |                                                                      |                                                                  |            |             |            |  
|Total current assets                       |                                                                      |                                                                  | 8,858,598  |             |            |   | 13,098,479   |            
|                                          
|                                          
|                                          
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|Property and equipment, net                |                                                                      |                                                                  | 2,945,984  |             |            |   | 3,075,455    |            
|                                          
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|Patents and trademarks, net                |                                                                      |                                                                  | 48,714     |             |            |   | 48,553       |            
|                                          
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|Other assets                               |                                                                      |                                                                  | 120,254    |             |            |   | 120,254      |            
|                                           |                                                                      |                                                                  |            |             |            |  
|                                           |                                                                      | $                                                                | 11,973,550 |             |            | $ | 16,342,741   |            
|                                           |                                                                      |                                                                  |            |             |            |  
|Liabilities and shareholders equity      
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|Current Liabilities                       
|                                          
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|                                           | Accounts payable                                                     |                                                                  | $          | 1,222,960   |            |   | $            | 1,791,671   |           
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|                                           | Accrued expenses                                                     |                                                                  |            | 679,811     |            |   |              | 1,149,681   |           
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|                                           | Deferred advertising revenue                                         |                                                                  |            | 50,000      |            |   |              |            |           
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|                                           | Note payable                                                         |                                                                  |            | 3,096,827   |            |   |              | 9,596,827   |           
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|                                           | Current maturities of capital lease obligation                       |                                                                  |            | 59,342      |            |   |              | 89,630      |           
|                                           |                                                                      |                                                                  |            |             |            |  
|Total current liabilities                  |                                                                      |                                                                  | 5,108,940  |             |            |   | 12,627,809   |            
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|Shareholders equity:                     
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|                                           | Preferred stock,                                                    
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|                                           |                                                                      | Authorized shares   10,000,000                                 
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|                                           |                                                                      | Issued and outstanding shares  none at March 31, 2001 and      
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|                                           |                                                                      | December 31, 2000                                               
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|                                           | Common stock, no par value;                                         
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|                                           |                                                                      | Authorized shares   50,000,000                                 
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|                                           |                                                                      | Issued and outstanding shares - 10,081,037 at March 31, 2001 and
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|                                           |                                                                      | 10,081,037 at December 31, 2000, respectively                    |            |             | 41,092,132 |   |              |             | 41,092,133 | 
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|                                           | Deferred Compensation                                                |                                                                  |            | (60,333     | )          |   |              | (71,646     | )         
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|                                           | Accumulated deficit                                                  |                                                                  |            | (34,167,189 | )          |   |              | (37,305,555 | )         
|                                           |                                                                      |                                                                  |            |             |            |  
|Total shareholders equity                 |                                                                      |                                                                  | 6,864,610  |             |            |   | 3,714,932    |            
|                                           |                                                                      |                                                                  |            |             |            |  
|Total liabilities and shareholders equity |                                                                      | $                                                                | 11,973,550 |             |            | $ | 16,342,741   |            
|                                           |                                                                      |                                                                  |            |             |            |  

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##### Table of Contents



NetRadio Corporation




|                                               |                                  |   |                     |            |   |      |            |            |  
|---------------------------------------------- | -------------------------------- | - | ------------------- | ---------- | - | ---- | ---------- | ---------- | -
|                                               |                                  |   | Three Months Ending |           
|                                               |                                  |   | March 31,           |           
|                                               |                                  |   |                     |           
|                                               |                                  |   | 2001                |            |   | 2000 |           
|                                               |                                  |   |                     |            |   |      |           
|                                               |                                  |   | (unaudited)         |           
|Net revenues                                  
|                                              
|                                              
|                                              
|                                              
|                                               | Product sales                    |   | $                   | 55,404     |   |      | $          | 223,341    |  
|                                              
|                                              
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|                                               | Internet advertising             |   |                     | 147,011    |   |      |            | 341,481    |  
|                                               |                                  |   |                     |            |   |     
|Total net revenues                             |                                  |   | 202,415             |            |   |      | 564,822    |           
|                                              
|                                              
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|                                              
|Operating expenses:                           
|                                              
|                                              
|                                              
|                                              
|                                               | Cost of revenues                 |   |                     | 45,346     |   |      |            | 197,907    |  
|                                              
|                                              
|                                              
|                                              
|                                               | Operations and technical support |   |                     | 1,698,091  |   |      |            | 2,522,364  |  
|                                              
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|                                               | Sales and marketing              |   |                     | 490,639    |   |      |            | 1,506,748  |  
|                                              
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|                                              
|                                               | General and administrative       |   |                     | 430,076    |   |      |            | 773,923    |  
|                                               |                                  |   |                     |            |   |     
|Total operating expenses                       |                                  |   | 2,664,152           |            |   |      | 5,000,942  |           
|                                               |                                  |   |                     |            |   |     
|Loss from operations                           |                                  |   | (2,461,737          | )          |   |      | (4,436,120 | )         
|                                              
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|                                              
|Other (income) expenses                       
|                                              
|                                              
|                                              
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|                                               | Interest (Income)                |   |                     | (292,025   | ) |      |            | (361,252   | )
|                                              
|                                              
|                                              
|                                              
|                                               | Interest Expense                 |   |                     | 191,922    |   |      |            | 220,972    |  
|                                               |                                  |   |                     |            |   |     
|Net loss before extraordinary item             |                                  |   | (2,361,634          | )          |   |      | (4,295,840 | )         
|                                              
|                                              
|                                              
|                                              
|Extraordinary gain on debt forgiveness         |                                  |   | 5,500,000           |            |   |      |           |           
|                                               |                                  |   |                     |            |   |     
|Net income (loss) after extraordinary gain     |                                  | $ | 3,138,366           |            |   | $    | (4,295,840 | )         
|                                               |                                  |   |                     |            |   |     
|Net income (loss) per share, basic and diluted
|                                              
|                                              
|                                              
|                                              
|Loss per share before extraordinary item       |                                  | $ | (0.23               | )          |   | $    | (0.43      | )         
|                                              
|                                              
|                                              
|                                              
|Extraordinary gain                             |                                  |   | 0.55                |            |   |      |           |           
|                                               |                                  |   |                     |            |   |     
|                                               |                                  | $ | 0.31                |            |   | $    | (0.43      | )         
|                                               |                                  |   |                     |            |   |     
|Weighted average shares outstanding           
|                                              
|                                              
|                                              
|                                              
|                                               | Basic                            |   |                     | 10,081,037 |   |      |            | 10,009,081 |  
|                                              
|                                              
|                                              
|                                              
|                                               | Diluted                          |   |                     | 10,109,454 |   |      |            | 10,009,081 |  

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##### Table of Contents



NetRadio Corporation




|                                                     |                                             |                                                     |           |                    |            |   |            |             |            |  
|---------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | --------- | ------------------ | ---------- | - | ---------- | ----------- | ---------- | -
|                                                     |                                             |                                                     |           | Three Months Ended |           
|                                                     |                                             |                                                     |           | March 31,          |           
|                                                     |                                             |                                                     |           |                    |           
|                                                     |                                             |                                                     |           | 2001               |            |   | 2000       |            
|                                                     |                                             |                                                     |           |                    |            |   |            |            
|                                                     |                                             |                                                     |           | (unaudited)        |           
|Operating activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|Net income (loss)                                    |                                             | $                                                   | 3,138,366 |                    |            | $ | (4,295,840 | )          
|                                                    
|                                                    
|                                                    
|                                                    
|Adjustment to reconcile net loss to net cash        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | provided by (used in) operating activities:
|                                                    
|                                                    
|                                                    
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|                                                     | Depreciation and amortization               |                                                     |           | 424,921            |            |   |            | 507,277     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Stock option compensation                   |                                                     |           | 30,167             |            |   |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Note payable forgiveness                    |                                                     |           | (5,500,000         | )          |   |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Change in operating assets and liabilities:         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accounts receivable                         |                                                     |           | 130,833            |            |   |            | (61,346     | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Prepaid expenses                            |                                                     |           | (48,565            | )          |   |            | (120,883    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Trade accounts payable                      |                                                     |           | (568,712           | )          |   |            | (1,266,710  | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accrued liabilities                         |                                                     |           | (488,724           | )          |   |            | (283,443    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Deferred revenue                            |                                                     |           | 50,000             |            |   |            | 167,385     |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other assets                                |                                                     |           | 190,000            |            |   |            | (52,300     | )         
|                                                     |                                             |                                                     |           |                    |            |  
|                                                     |                                             | Net cash used in operating activities               |           |                    | (2,641,714 | ) |            |             | (5,405,860 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Investing activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Increase in intangible assets               |                                                     |           | (3,417             | )          |   |            | (1,208      | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property and equipment          |                                                     |           | (292,194           | )          |   |            | (925,872    | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of short-term investments          |                                                     |           |                   |            |   |            | (10,717,583 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of short-term investments              |                                                     |           | 3,908,672          |            |   |            | 11,861,117  |           
|                                                     |                                             |                                                     |           |                    |            |  
|                                                     |                                             | Net cash provided by (used in) investing activities |           |                    | 3,613,061  |   |            |             | 216,454    |  
|                                                    
|                                                    
|                                                    
|                                                    
|Financing activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payment on capital lease obligations        |                                                     |           | (30,288            | )          |   |            | (27,935     | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments of notes payable                   |                                                     |           | (1,000,000         | )          |   |            |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from stock issuances               |                                                     |           |                    |            |   |            | 13,400      |           
|                                                     |                                             |                                                     |           |                    |            |  
|                                                     |                                             | Net cash provided by (used in) financing activities |           |                    | (1,030,288 | ) |            |             | (14,535    | )
|                                                     |                                             |                                                     |           |                    |            |  
|Net (decrease) increase in cash and cash equivalents |                                             |                                                     | (58,942   | )                  |            |   | (5,203,941 | )          
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                             |                                                     | 82,943    |                    |            |   | 11,721,536 |            
|                                                     |                                             |                                                     |           |                    |            |  
|Cash and cash equivalents at end of period           |                                             | $                                                   | 24,001    |                    |            | $ | 6,517,595  |            
|                                                     |                                             |                                                     |           |                    |            |  

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##### Table of Contents



NETRADIO CORPORATION




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, 2000 included in the Companys 2000 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 three months ended March 31, 2001 are not necessarily indicative of the
operating results for the year ending December 31, 2001.





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##### Table of Contents



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

Cautionary Statement

This Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements reflect managements current expectations or beliefs and future
actual results could differ materially from those in any forward-looking
statements depending on the outcome of certain factors. Any such forward-looking
statements are subject to risks and uncertainties including, but not limited to,
our ability to generate revenue from a new and unproven business model, the
incurrence of operation losses, the necessity to obtain additional financing to
achieve our strategic business objectives, the fluctuation of subscription and
advertising revenues, our ability to expand our technical capacity, competition
and other risks and uncertainties, including the factors set forth on Exhibit
99.1 to our Annual Report on Form 10-K for the year ended December 31, 2000.
Except as required by applicable law, we undertake no obligation to update or
revise any such forward-looking statements.

GENERAL

NetRadio is the leading webcaster specializing in originally programmed
audio entertainment through our website, NetRadio.com. NetRadio.com provides
more than 100 channels of music and information, 24 hours a day, seven days a
week. Visitors to the site can access music, news and information within
NetRadio.coms 16 music genres. Depending on the seasons, approximately 2-3
million unique guests visit NetRadio.com several times per month.

We provide our advertisers and marketing partners with the ability to
reach focused segments of users defined by specific demographic and lifestyle
characteristics. NetRadio.com allows advertisers to utilize the combined
strength of audio messaging with banner advertising.

We also provide our consumer Internet experience to other online
businesses. Our business to business (B2B) initiative began in July 2000. We
provide our B2B customers (primarily leading online sites) with co-branded
players that include 10 to 20 channels of our originally programmed music. The
co-branded player delivers a passive music experience to our B2B customers end
users, and increases their length of stay on a site, or site stickiness. The
co-branded player also allows our B2B customers to deliver synchronized audio
and banner advertising messages to their users.

We recognize banner advertising revenues over the period in which the
advertisement is displayed on our web site. We recognize barter advertising by
multiplying the contracted impression rate by the amount of monthly impressions
served until the contracted amount of impressions is completely depleted. The
contracted impression rate is comparable to rates realized in sales of
advertising to other third parties. We derive promotional advertising revenues
from product or artist related promotions, and recognize these revenues over the
term of the promotion. We derive audio and video advertising revenues from the
sale of advertising spots, and recognize these revenues when the audio or video
advertisement is broadcast.

RESULTS OF OPERATIONS

Net Revenues

Net revenues consist of Internet advertising revenues, product
sales and since March 2001, commissions on products sold through our affiliate
Amazon.com. Net revenues decreased to $202,000 for the three months ended
March 31, 2001 from $565,000 for the three months ended March 31, 2000, a 64%
decrease. The decrease in revenues for the three months ended March 31, 2001
over the prior year period was due to the outsourcing of our e-commerce
operations and an overall decrease in advertising as customers reduce
discretionary spending in anticipation of a slowing economy.

Product Sales. Revenues for the quarter reflect the impact on product
sales of outsourcing e-commerce operations to Amazon.com. Last year, the company
received 100 percent of the revenues from product sales. Now, NetRadio receives
a commission from Amazon.com for each product sold through the NetRadio.com
website. Reported product revenues decreased by 75 percent to $55,000 for the
three months ended March 31, 2001 from $223,000 for the three months ended March
31, 2000.

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The Amazon relationship enables NetRadio to generate profits from its
e-commerce operations compared with the losses generated by its in-house
operation last year.

Internet Advertising. Internet advertising revenues include audio,
video and banner advertising sales. Internet advertising revenues for the three
months ended March 31, 2001 were $147,000 compared to $341,000 for the three
months ended March 31, 2000, a decrease of 56%. On a cash revenue basis, first
quarter advertising revenues were down 37% as advertising revenue for the three
months ended March 31, 2000 included $106,000 of non-cash barter advertising.
The decrease in advertising revenue for the three months ended March 31, 2001,
over the prior year period was due to the overall industry wide decrease as
customers reduce discretionary spending in anticipation of a slowing economy.

Operating Expenses Cost of Revenues

Cost of RevenuesCost 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 for
the quarter reflect the impact on product sales of outsourcing e-commerce
operations to Amazon.com. Last year, the company incurred 100 percent of the
costs from product sales. Costs of revenues decreased to $45,000 for the three
months ended March 31, 2001 from $198,000 for the three months ended March 31,
2000. The decrease in cost of revenue for the three months ended March 31, 2001,
over the prior year period was due to the decrease in product sales and the
outsourcing of the e-commerce operations.

Operations and Technical Support. Operations and technical
support expenses consist primarily of data communications expenses, personnel
expenses associated with broadcasting, e-commerce and technical support,
software and content license fees, operating supplies and overhead. Operations
and technical support expenses were $1,698,000 for the three months ended March
31, 2001, compared to $2,522,000 for the three months ended March 31, 2000, a
decrease of 33%. The decrease in operations and technical support expenses for
the three months ended March 31, 2001 over the prior year period was due
primarily to a decrease in bandwidth costs and the outsourcing of our e-commerce
site.

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 $491,000 for the
three months ended March 31, 2001, compared to $1,507,000 for the three months
ended March 31, 2000, a decrease of 67%. The decrease in sales and marketing
expenses for the three ended March 31, 2001 over the prior year period was due
to a significant reduction in advertising expenses.

General and Administrative.General and administrative expenses consist
primarily of administrative personnel expenses, professional fees and
expenditures for facility costs. General and administrative expenses were
$430,000 for the three months ended March 31, 2001, compared to $774,000 for the
three months ended March 31, 2000, a decrease of 44%. The decrease in general
and administrative expenses for the three months ended March 31, 2001, over the
three months ended March 31, 2000, was due to goodwill being fully amortized in
the period ended March 31, 2000, a reduction in salary expense due to the
September 2000 resignation of a corporate officer, and a reduction in
professional fees.

Interest Expense.Interest expense for the three months ended March 31,
2001 was $192,000, compared to $221,000 for the three months ended March 31,
2000. The decrease in interest expense for the three months ended March 31,
2001, over the prior year period was due to a higher federal prime rate of
interest, which positively impacts the interest due on the Navarre Note.

Interest Income.Interest income for the three months ended March 31,
2001 was $292,000, compared to $361,000 for the three months ended March 31,
2000. The decrease was due to a higher cash balance in the period ended March
31, 2000, for use in earning interest through the purchases of investments in
short- and long-term securities.

Extraordinary Gain.In March 2001, we restructured our $9.6 million
term note with Navarre. Under the terms of the restructuring, Navarre forgave
$5.5 million of the principal amount in exchange for a $1 million prepayment by
NetRadio. The $5.5 million forgiveness of debt resulted in an extraordinary
gain.

LIQUIDITY AND CAPITAL RESOURCES

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

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listening experience to our users. We have funded our capital requirements
primarily through the sales of equity securities and prior to our initial public
offering, borrowings from Navarre.

The Company had working capital of $3.7 million at March 31, 2001,
compared to working capital of $471,000 at December 31, 2000, primarily as a
result of the restructuring of the term note with Navarre.

Net cash used in operating activities was $2,642,000 and $5,406,000 for
the three months ended March 31, 2001 and 2000, respectively. Net cash used in
operating activities for the three months ended March 31, 2001 was primarily
comprised of our net losses before extraordinary items and a decrease in
accounts payable and accrued expenses, offset in part by depreciation, accounts
receivable and other assets.

Accounts receivable decreased to $161,000 at March 31, 2001 from
$292,000 at December 31, 2000 and consisted primarily of agency-placed
advertising revenue accounts. The decrease in accounts receivable was due to the
decrease 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 $1,223,000 at March 31, 2001 from
$1,792,000 at December 31, 2000 was due primarily to payments for capital
expenditures and other business expenses that became due in the quarter ended
March 31, 2001.

We generated $3,613,000 and $216,000 in net cash from investing
activities for the three months ended March 31, 2001 and 2000, respectively. The
net cash provided by investing activities for the three months ended March 31,
2001 and 2000 was the net result of short-term investment purchases and sales
offset by the purchases of property and equipment.

We used net cash for financing activities of $1,030,000 and $15,000 for
the three months ended March 31, 2001 and 2000, respectively. Net cash used for
financing activities for the three months ended March 31, 2001 was primarily due
to a $1,000,000 payment on the Navarre term note.

In March 2001, we restructured our term note of approximately $9.6
million owing to Navarre. Under the terms of the restructuring, Navarre forgave
$5.5 million of the principal amount in exchange for a $1 million prepayment by
NetRadio. In addition, Navarre extended the maturity date of the term note from
November 14, 2001 to March 31, 2002. The term note with Navarre bears interest
at Midwest prime plus one half-percentage point (9% as of March 1, 2001) and is
payable monthly. After giving effect to this restructuring, the principal
balance of the term note with Navarre is currently approximately $3.1 million

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 10 months. To fund future
operations, we may need to raise additional funds, through public or private
financing, or other arrangements. We are evaluating potential issuances of our
debt or equity securities to strategic partners and are exploring 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.

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

None

Item 2. Change in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

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|10.1                                                                                                                                     |  | First Amendment to Term Note, dated as of March 26, 2001, by and between NetRadio Corporation and
Navarre Corporation (1)
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|10.2                                                                                                                                     |  | Second Amendment to Term Note, dated as of March 30, 2001, by and between NetRadio Corporation and
Navarre Corporation   
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Incorporated by reference to the Report on Form 8-K of the Registrant dated March 26, 2001                                          
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|B. Report on Form 8-K                                                                                                                   
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|NetRadio filed a Report on Form 8-K dated March 26, 2001 in connection
with the restructuring of the term note with Navarre Corporation.

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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: |  | 5/14/01 |  |  |    |  |  | NETRADIO CORPORATION                                 
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Eric H. Paulson                                  
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|       |  |         |  |  |    |  |  | Eric H. Paulson                                      
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Michael P. Wise                                  
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|       |  |         |  |  |    |  |  | Michael P. Wise                                      
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